1. Open an registered education savings plan (RESP)
Setting up an RESP is a popular way for parents to save funds for their children’s college education. One reason for its popularity is the fact that the federal government will contribute up to an additional $500 a year (20% of the first $2,500 of contributions paid annually) to the account until your child reaches the age of 17 (up to a lifetime maximum of $7,200). If you set up an RESP when your children are young, you can have a pretty big amount saved for them by the time they finish high school.
2. Save in a non-registered account
Setting up a non-registered account is another good way to save money for your children’s future education. You will have the freedom to withdraw funds whenever you want. The only downside is that you may be tempted to withdraw the cash to cover other expenses. Plus, all income earned in non-registered accounts is taxable.
3. Set up automatic contributions
Whatever account you set up to save money for your child’s education, it’s a good idea to direct your bank to automatically transfer a fixed amount each month from your bank account into the education account. This will ensure that the account receives regular contributions each month and you won’t neglect to pay into it.
4. Use life insurance
If you have a life insurance policy, you can build up and then tap into its excess cash value to help fund your child’s education. The amount can grow month over month without being taxed. Only when you withdraw the funds will they be subject to tax.
5. Open a tax-free savings account
A tax-free savings account (TFSA) is an account that enables you to shelter your investment earnings from income tax. Currently, the annual maximum is $5,500, but you can also contribute for any past years in which you didn’t contribute back to 2009, when it was first introduced. Plus, all withdrawals are also exempt from tax.
6. Make your child a shareholder
If you own a business, you can make your child a shareholder of your company and pay out dividends to them that can be used to help fund their university education. The biggest benefit of this tactic is that the dividends will be taxed in your child’s name. Assuming they are in a lower tax bracket that you, this can be a good way to build up their education savings while paying less tax.
7. Prepare a monthly budget
Finally, if you don’t already have one, prepare a monthly household budget to identify and eliminate any unnecessary expenses. Plus, whenever you get something on sale, consider investing the amount you saved in your child’s education savings plan. You’ll be surprised how much money this can enable you to save each month.
This post was sponsored by Sun Life Financial.
Saviour of Your Savings
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