Today’s parents worry significantly more about their child’s academic future than the baby boomer crowd ever had to.
How to invest properly to cover tuition plus living costs? How do I set milestones to reach that goal in 10 years? These questions predominantly occur in quiet dinner-table conversation between spouses, and can quickly escalate into altercations if dealt high handedly.
Planning for your child’s higher education way in advance can mean the difference between staying afloat and going bankrupt. With steep costs of university education, families are forced to look at investments that will yield desired returns without hedging their money’s worth on market uncertainties.
In Canada, the federal government has come to the aid of parents with Registered Education Savings Plan (RESPs). These savings instruments relieve them of incoming financial liabilities associated with higher education and to save their children from accumulating student loans down the road.
Optimizing the benefits of this federal provision, as per the reviews read online, Knowledge First Financial is keen on guiding families to select the best savings plan in five easy steps.
- Government Contributions
A Registered Education Savings Plan (RESP) works when the subscriber or the individual representing the subscriber makes contributions on a monthly basis to the RESP. For every dollar that is deposited in an RESP the government matches it with a 20% offer, i.e., 20 cents for every dollar. This offer is solid for up to a maximum of $2500 annually deposited by parents. That translates to a maximum government contribution of $500 a year for each child. The government contributions, referred to as the Canada Education Savings Grant (CESG), pledge to continue increasing a child’s RESP until they turn 17.
We recommend saving with an RESP as you stand to gain a bonus $7200—the maximum lifetime CESG payment made by the government per child.
The beneficiaries who applied under the Pradhan Mantri Awas Yojana last year have been included under the Pradhan Mantri Awas Yojana List, check out PMAY प्रधानमंत्री आवास योजना की नई लिस्ट कैसे देखें.
- Tax Sheltered Contributions
Unlike other savings plans, RESP contributions aren’t taxed. This means parents can pool their earnings i.e., dividends, interests received, and salaries into an RESP and have the money accumulate for years without incurring tax deductions. All the income garnered and deposited in the RESP remains tax sheltered provided it’s earmarked for the RESP. This makes saving for higher education much easier by allowing parents to accumulate more than they would have originally through other means.
This allows parents to maximize the financial rewards of an RESP.
With RESPs, there is no minimum amount that parents are required to contribute each month. There are numerous RESP plans for parents to choose from, depending on their level of income and the amount they can afford to set aside. This means parents don’t have to wait until they start making ‘substantial’ money to begin saving for their child. They can start with the most basic plan and build on their investments in line with their financial growth.
Assess various RESP plans to determine the best fit for your child.
- Low Maintenance
An RESP savings plan follows a “set it and forget it” model. This means there are no monthly or annual costs associated with the account whatsoever. This translates to fewer deductions on your income and more money in your child’s RESP. There are no hidden fees as can be expected with some checking and savings accounts. Just as important, there are no minimum balance requirements and all deposits are free of charge.
These accounts are easy to open. Parents must carry their social insurance card, and their child’s social card and birth certificate as these are the requisite documents. Parents can add other children as beneficiaries if they are Canadian residents. Low maintenance of RESPs also ensures that parents can create several RESPs for a child to maximize contributions. It helps to be conscious of the $50,000 lifetime limit that can be set per child when setting up multiple RESP accounts.
- Better Return on Investments
When you choose RESPs over traditional savings accounts, you boost your chances for stronger returns on investment. Generally, savings accounts have low interest rates, as little as 1 per cent. This means that for each $100 deposit, only $1 is generated. Also, savings accounts are prone to periodic maintenance charges. RESP accounts, on the other hand, are subject to zero charges and come with a lucrative government offer of matching each dollar with 20 cents for up to $2500 dollars deposited in a year. Of the two, RESPs clearly bring better returns on investment. All things considered, families stand to gain more from the right RESP plan than relying on traditional investment instruments that let money lie idly.