Most parents in Canada know about Registered Education Savings Plans. However, it doesn’t essentially mean that they have them. On the other hand, only a few are aware of the RESP alternatives of saving for their little one’s tuition. With post-secondary education costs rising and the job market looking depressing, the young adults are more likely to finish their schooling burdened with significant amounts of debt. Hence, as a parent, you need to get smart ideas for putting money aside for your child’s education.
RESPs are one of the most popular ways for parents to save for their children’s high education. Money places into such investment accounts can grow tax-free. In this post, we will discuss how parents can maximize their Registered Education Savings Plan contributions and the other ways to save.
How to Save for your Child’s Education? Here are the 5 Smart Ways
#1 Get Life Insurance
Parents can use life insurance to fund their kid’s education by making regular investments into a life insurance policy and tapping into excess cash value. The benefit of getting life insurance is that the amount saved would be tax-deferred inside the life insurance policy. However, it is not advised to break into the excess cash until the policy is matured; else you will not get the full benefit. Even in parents are struggling, grandparents can tap into their policy to manage the cash flow.
#2 Pay Out Corporate Dividends
If you have an incorporated family business or if you are incorporated, you could accumulate savings in your corporate account, and at a later date, you can pay them out to pay for your child’s education. However, for this to happen, your children would require owning shares of your company, who will have ostensibly low income. This is a great way to support your children’s post-secondary education and can benefit your RESP contributions as well.
#3 Set Up a Trust
A trust is a legal agreement, like a Will, where funds are transferred from one individual to another based on specific terms. Setting up a trust is a great way to control, manage, and protect funds. The biggest benefit of having a trust is that it gives a grandparent or a parent the peace of mind with the fact that the money will be used for its intended purpose – like for the grandchild’s or child’s post-secondary education and other higher studies. However, it is critical to set up a trust in the right manner with a written agreement outlining the terms and conditions.
#4 Use Tax-Free Savings Account (TFSA)
Using a Tax-Free Savings Account will allow parents to build up their savings tax-free. The best, they can withdraw the money any time in the future to help finance their children’s education.
#5 Open a Non-Registered Account
Opening a non-registered account is easy, especially when it comes to the purpose of saving for your child’s education. Such type of account is easy to set up, offers flexibility, and simple to understand. You can withdraw the funds at any time.
It is critical to research the possible investment options available that suits your financial portfolio. You can help your child build a bright future with proper education.