how to save money for education

Save for Education

You will hear over and over Save for Education, that’s because paying for education can be daunting, be it your own or your child’s education. Many people don’t realize that saving for education is possible if done right. As a general rule, you should start early. Starting early means you will have more saved up for your child’s education.

Registered Education Savings Plan

An RESP (Registered Education Savings Plan) is a good place to start. Open an RESP as soon as your child is born. So how does an RESP work? Well, a person, usually parents, make contributions to an RESP on a monthly basis. RESP’s don’t have an annual limit for contributions, however it cannot exceed $50,000 over life time. The government will contribute a maximum of $500 per year with a maximum lifetime payment of $7,200 until your child turn’s 17.

Canada Learning Bond

Another option to get a start on saving for your child’s education is through Canada Learning Bond. It is for children born after December 31, 2003 and whose family income falls under low income bracket.  If you qualify the government will deposit $500 in your child’s RESP and will continue to deposit $100 per year as long as you qualify.

Lifelong Learning Plan

If you want to save for education then there is Lifelong Learning Plan (LLP). Under this plan, you can withdraw funds for full-time education or training for yourself or your partner. You can access a maximum of $10,000 per year or a lifetime maximum of $20,000. When you withdraw from an LLP you have up to 10 years to repay into your RRSP.

Other Saving Options

If you’re already using the methods above and are looking for other options to save, the options below should be considered:

  • Tax-Free Savings Accounts

Start saving in a tax-free savings account. You will be saving tax-free with the option to withdraw money at any time. This money can be used towards your child’s education.

  • Informal Trust Accounts

Setup and informal trust account. Open an account at your bank and name the child the beneficiary. The account will be held until your child reaches the legal age of 18. There are some benefits of going down this path. Unlike RESP there are no minimum or maximum amounts to contribute. Another benefit is that your child will not have to pay taxes on money withdrawn as you are contributing after-tax dollars, you have already paid taxes on money deposited in the account. The only tax paid will be on the amount earned due to interest. Also, your child is not limited to using this money only for education, they are free to use it as they fit.

  • Ask your child to contribute

Ask your child to contribute to education fund. Summer jobs are a great way to get your child to start earning some money and putting a certain percentage of wages towards their education.

  • Take care of your own finances

Get your finances in order so you can look after your child’s education. Your ability to save for education for your child hinges on you as a parent being financially secure.

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