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Kids and University: Better use an RESP

Written in 2006 when the RESP was big, but Ontario decided to allow Universities to increase tuition costs.

So this little piece of information made my day. The Ontario government will allow a 5% increase PER YEAR for the next two years on university tuition fees. I should start investing in Universities since their income is increasing better than many High Tech firms.

Tuition brings up the RESP (Registered Education Savings Program) topic, which Canadians can take advantage of. Unlike an RRSP (Registered Retirement Savings Plan), 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 $2500 per year) (and a total limit of $7200 of grants for the life of the program). Grants, Bonds and Growth are not taxed either in your hands, but in the hands of the student (usually a much lower tax rate). You must give the grant and bond money back if the child doesn’t go into a post-secondary program. If it is a Family Plan money can be transferred to siblings.
  2. Depending on the family income, there is the Canada Learning Bond, for lower-income families as well.

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

Have a read of RESP: Free Money Folks for more details.

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