I saw something new on RESPs (Registered Education Savings Plans) the last time I was in Vancity. The BC government will give you an extra $1,200 over and above the federal government grants. I thought it might be useful to relate our experiences with this valuable financial aid.
We have two children in University now and I can assure you that, when your new baby is university-age, it will cost you between $10,000 (if they stay at home) and $15,000 per year per child when they embark on their post-secondary education.
The RESP is the Great Government Giveaway that anyone with a child can take advantage of. Open an RESP account at any bank or credit union, deposit as much as $2,500 per year (or $100 every bi-monthly paycheque) and the government will give you $500. Invest this money any way you like. Any gains on your investments are not taxable until you begin to use the funds for education. Repeat every year. Do this for 18 years and you have $54,000, not counting any investment income.
The BC money of $1,200 is available to you once your child has reached the age of 6. You could (if you wanted) choose to start your RESP account at that time.
When you take the money out, the grant portion (ie. the $500/year from the government) is taxable. Make sure you give it to your child who presumably is in a lower tax bracket than you are. The $2,500 you put in each year is not taxable if you give it back to yourself (after all you invested with aftertax income). Any investment gains are taxable, so once again, make sure you give those to your child to reduce your taxes.
Let’s say your child chooses not to go on to post-secondary schooling. No problem, just return the grant portions (the $500/year the feds gave you and the $1,200 BC gave you). Everything else is yours and the same tax rules apply as above.
We are really glad we have money to fund our kids’ education and we are really glad they will not have any student loan debt once they graduate.