How I plan to save over $85,000 towards my daughter’s education using only the Government’s money
July 20 2016 – check your bank account – you should now be receiving the revamped Canada Child Benefit (which replaced the former Universal Child Care Benefit and Canada Child Tax Benefit). It is the new tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age.
The basic benefit under the new Canada Child Benefit will be: $533.33/child/month for every child under the age of six, and $450/child/month for every child 6-17 (source: http://www.cra-arc.gc.ca/nwsrm/txtps/2016/tt160525-eng.html). This amount will be reduced according to income so every family may be different, please visit the CRA website for more information on how your CCB will be calculated.
SO…what are you going to do with the money being given to you (or your children)? There are a variety of options. My husband and I decided when we had our daughter in 2012, that when we began receiving the UCCB & CCTB (now CCB) we would pretend the money didn’t exist, we would attempt to live (and provide) for her without dipping into “her money.” I understand that this is not a reality for everyone and that diapers, food and clothing for children can be expensive! However, taking just a small portion of this benefit and plunking it into an automatic saving RESP for your child can amount to a large amount of money for your child’s future education.
Starting in 2012 we established two separate savings accounts for her 1) An RESP and 2) an in-trust high-interest savings account. The money that is deposited into these accounts is strictly the government payments we receive and any monetary gifts from family & friends.
The amazing thing about the RESP we set up for her is that the money grows in it completely tax-free until she chooses to redeem it. When she does choose to redeem it, as a student, she will likely be earning little to no income, meaning the amount withdrawn by her will also be tax-free. (Yay!) It can remain open for up to 36 years, so if she decides to take a year or two off after high school or return to school later in life, she has the option.
Another incredible thing about her RESP is that the Government of Canada provides the Canada Education Savings Grant (CESG) which matches our contributions 20% on the first $2,500 we contribute annually up to $500/year and a maximum of $7,200 over the lifetime of the RESP (source: http://www.esdc.gc.ca/en/student_grants/cesg.page.)
However, using only a fraction of the CCB money, ($183.33/month) set aside in an RESP will grow exponentially read: a LOT.
Here is an illustration of her RESP growing using only a fraction of the Canada Child Benefit we are receiving and the government matching those contributions:
Illustration courtesy of: http://www.mbsecurities.ca/get-informed/pubs/resp_brochure.pdf
To maximize her CESG I want to contribute $39,600 over 18 years (that’s $2,200/year or $183.33/month).
The government will match our contributions by 20% meaning for every $183.33 we contribute $220 actually gets deposited. So $2,2000 contributed annually, plus $440 CESG, earning an average rate of return of 6% over 18 years means the $183.33 a month of FREE Government of Canada money that I have tucked away for her education will total a whopping $85,571.23 by the time she is 18 years old. She can then use that money towards whatever education she chooses whether it be a Trade School, University or Community College!
If you would like to know more about opening up an RESP for your child (or children) please give me a call, or email or text. I’d love to chat with you about making this, or any of your other financial dreams, a reality!
Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.
Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.