Whether your child has just begun to walk or entered their teenage years, it’s never too early to start saving for their college education. According to Statistics Canada, the average tuition fee for an undergraduate program at a Canadian university was $6,468 per year from 2019 to 2020. Taking living expenses and other costs into account, the total amount needed to complete a four-year program can easily exceed $50,000. Although the steep costs can be discouraging, you can make things a lot more manageable by taking the following measures to save for your child’s future education:
1. Start a Registered Education Savings Plan (RESP)
An RESP refers to a government-sponsored investment program that’s specially designed to help you save for your child’s post-secondary education. It enables your investments to grow tax-free and offers contributions from the government. You’re allowed to contribute as much as $2,500 a year, and the government will match 20% of your annual contributions through the Canadian Education Savings Grant (CESG) program. However, the funds in your account can only be used for the purpose of education. Still, starting an RESP early is an effective way to minimize your kid’s student loan debt.
2. Sign Up for a Tax-Free Savings Account (TFSA)
A TFSA is another popular method of saving money for post-secondary education. It’s a federal savings program that enables individuals who are at least 18 years old and have a social insurance number to build up savings in a tax-free manner throughout their lifetime. You have the freedom to withdraw your money anytime and use it for any purpose, including funding your children’s education. With this savings account, your funds will be tax-free even when you withdraw them. However, there’s a limit on the amount of money you’re allowed to contribute each year.
3. Open a Trust Account
If you prefer to have more flexibility, it’s a good idea to open a trust account. A trust account enables you to use your contributions for any purpose, from paying college expenses to buying a car. With this type of account, your child is regarded as the owner of the funds, but you can withdraw the money you contributed if you’re willing to pay tax on the capital gains.
4. Purchase Life Insurance
Many parents are using life insurance to save money for their children’s college education by building up cash value in their policies. The main advantage of this strategy is that it allows the funds to grow tax-free until they’re withdrawn. Additionally, it gives you the option to use the cash value as collateral for a student loan. However, there’s a downside to this method of saving for college, which is the loss of control over the money you deposit into your policy. You’ll also have less flexibility when it comes to managing your life insurance plan.
All college savings strategies have their pros and cons. Doing proper research on different options can help you determine which one is most suitable for you and your child.