Kids and University: Better use an RESP

So this little piece of information made my day, the Ontario government is going to allow a 5% increase PER YEAR for the next two years on tuition fees for universities. I think I should start investing in Universities, since their income is increasing better than a lot of High Tech firms that I know about.

This brings up the topic of the RESP (Registered Education Savings Program), which Canadians can take advantage of. It is not like an RRSP (Registered Retirement Savings Plan), where the money you put in is Tax-free, however it does have some advantages :

  1. Any money you put in gets a Canada Education Savings grant of 20% (up to $2000 per year) (and a total limit of $7200 of grants for the life of the program). From what I can tell this portion of the money is not taxed either in your hands, but in the hands of the student (a much lower tax rate). If the child doesn’t go into a post-secondary program, you must give the grant money back.
  2. The money in the plan is already taxed, so when the child takes the money out, the only thing they should be taxed on is the GROWTH in the fund. Remember it is taxed in the child’s hands as well, so a much lower tax rate (normally).

So, just for the 20% “kick up” you should start one of these things for your kids. Tuition fees are really getting out of control, and the more you save now, the less likely you are to have to go into further debt if your child decides to go to a post-secondary program! Start Early too!!!!

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