BY: FAZAAD BACCHUS
Saving for your children’s education is a priority, for some people it may not be too difficult if you have a very good job and you also have one or two children. What about those who don’t have too much disposable income or have more than two children? This could put the children at a disadvantage and may force them to reach out to OSAP loans to cover tuition if they qualify.
There are many times grandparents often ask what they can do to help a grandchild get ahead in life and of course one of the most important things could be helping to fund their education. Children who get a better education are often in a better position to start and build their lives, there is no denying that. There is a misunderstanding that only parents can save for their children’s education, but as you can see it’s not the case. It’s true that even aunts and uncles can do the same for a niece or nephew, but we can get to that at another time.
Many grandparents make some form of pension income, be it CPP or from their previous employment, added to this could be their OAS and possible GIS. If a grandparent lives at their children’s home then expenses are not usually high for them and starting to save for a grandchild’s education may be a possible thing to do. Of course, you will not see the grandchild wearing beaming smiles as there isn’t the tangible gift to see, but the savings that a grandparent puts out could go a long way and the grandchild will certainly remember you for it when he or she starts schooling.
Well, how does it work. First you have to sit with a financial advisor and calculate what you believe the grandchild may need for education. You also have to determine the amount that you as a grandparent can contribute. There are some rules to be guided by, for example, you can contribute what you can but your total contributions cannot exceed $50,000. When you make annual contributions, the government will also make a grant known as CESG where they will put 20% of what you contribute up to $500 per year. There is a lifetime amount in $7,200 that the government will contribute.
So, let’s suppose that you save $100 per month for your grandchild that will be $1200 per year, the government’s contribution will be $240 and if you invest it properly, you could end up with about $1600 at the end of the year. If you continue to do this every year, for a one-year-old grandchild, the sum could add up to close to $40,000 and it grows tax-free all the time. There is no tax benefit for you the grandparent, but your grandchild will pay tax only on the growth, not your contributions. This is the kind of a gift that a child needs, and while it is the responsibility of the parent to ensure their children’s education, sometimes it just isn’t possible. Therefore, if you as a grandparent can help and want to help, please send me an email and I will forward you information on the best RESP type for your grandchild.