Start a child on the right foot
Q. I am new to Canada, my wife and I moved to Toronto in 2007 and have worked hard to get a good job and buy a home.
Now we are having a child and want to concentrate on putting money aside for the future and our retirement. I know that for our retirement an RSP seems to be the best option, but what are the options out there for our child?
I have heard of the RESP although I am not sure exactly how it works. Is there anything else?
-- Miron B.
A. Congratulations on the addition to your family. With children, time seems to fly. At one moment you are planning to take them home from the hospital, the next, they are off to university.
This rapid transition requires careful planning. That is why it's necessary to start pre-authorized contributions automatically, so you do not feel the pinch later. Follow the principle of paying yourself first by saving for your child "first."
The RESP is an excellent vehicle for education savings. The earlier you begin to take advantage of this vehicle, the better it will be for you because more can be saved over a longer period of time. There are a number of growth opportunities depending on how you invest.
To open the plan, you need a valid social insurance number for the child. Once the plan is open, you can start deferring taxes on the earnings.
The government will also help you by giving you an incentive called a Canada Education Savings Grant, (CESG) which is 20% of the first $2,500 of your annual contributions to a maximum of $7,200 as a lifetime grant.
There are a number of other incentives the government provides and you can acquire that information by visiting your local bank or visiting the government website hrsdc.gc.ca.
Although education is very important, it is not the only thing you should be planning for. Getting the child started on a savings plan will give them a head start. There are other accounts that can be opened for the child to get him or her beyond the university years.
Remember, there will likely be a car, a wedding, a house and retirement planning.
For more information on financial planning, visit your local branch and
speak to a financial advisor who is well qualified to have that discussion with you.
- Chris Alexander, MBA, BBM, PFP, FICB