Content of the article Canadians have many different investment options at their disposal, ranging from Retirement Savings Plans (RSPs) to Registered Education Savings Plans (RESPs) and more recent Tax Free Savings Accounts (TFSAs). These tools are great when used as a pair however they can also be combined to achieve more.
Article content Parents who are planning for the education of their children should take note. Parents can increase the funding for their children's education by combining the benefits of RRSPs, TFSAs, and RESPs.
Maximize your education savings
Consider an Ontario investor earning $100,000 a year, who contributes $14,000 to an RRSP. The investor would save approximately $6,077 If the RRSP contribution was fully deductible.
Money that has been growing tax-free in the TFSA can be contributed to the child's RESP where it can earn interest tax free and be eligible for cash donations from the government. The Canada Education Savings Grant (CESG), a grant of 20% of the amount will be granted to the RESP. Runescape Wiki This grant could be as high as $500 per year for each RESP beneficiary who is younger than 18, with the maximum lifetime benefit of $7,200.
Article content Parents should file tax returns on behalf of their children as soon as they can. Even if it's a few hundred dollars from baby-sitting, or a paper route, they should do so in the earliest time possible. There are two benefits. The first benefit is that the child starts to accumulate RRSP contribution space which can be used later on in their lives, if they need the tax deduction.
The second option is if the child is 19 years old, and they have filedfor tax, they can apply for the GST/HST credit that results in quarterly payments to the government. The credits can be added to the savings for education.
If the child has been fortunate enough through high school to have sufficient earnings from summer jobs or in a family-owned business which made contributing to an RRSP reasonable, it could help them with their educational funding. If an RESP does not provide sufficient education funds, RRSP contributions can easily be withdrawn without penalty by using the Lifelong Learning Plan.
Article content The investor has greatly benefited by boosting their retirement savings via their RRSP, receiving an income tax refund that can build tax-free within TFSA and then subsequently the funding of an RESP that generates free money through the federal government’s CESG program.
Kim Inglis is an Investment Advisor, CIM with Canaccord Wealth Management, a division of Canaccord Genuity Corp.Kim can be reached at www.reynoldsinglis.ca.
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