This article is brought to you by Insurance for Children, Canada’s leader in financial planning for children and the creator of Child Plan ™ the fastest growing alternative to the RESP.
Congratulations! You’re about to become a parent, the best job in the world!
Or maybe you’re about to become a parent again.
You’ve probably got some big decisions to make once the baby arrives. Maybe you will need a bigger home, who’s taking maternity leave, and for how long? What do you need to buy now in preparation for the new arrival? And what benefits and financial assistance should you know about?
In 2017/2018 the median cost of an undergraduate student program in Canada was $55571, up 3% from the year prior. This does not include housing or education costs. The best way to prepare for post-secondary education for many parents is to start saving right after birth for maximum contributions. When we are new parents, we want a child with many goals to fulfill. Starting early is important to saving on the education of your young children.
Here are some important savings that could prove of huge benefit to you and your child.
Canada Child Benefit (CCB)
If you are eligible, how much you get paid will depend on your after-tax income, how many children you are claiming for, and their ages.
The CCB is an “income-tested” federal government benefit. The higher your taxable net income is, the lower your CCB will be. For some high-earning families, at a certain level of income, the CCB will be reduced to $0. Anyone with income above that level will not receive any benefit.
The CCB also changes every year. New benefits start in July and are based on the past year’s tax return of both parents (the first payment of the updated benefit is July 20th). If one of the parents fails to complete their tax return on time, payments stop until both returns are in.
A calculator is located at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-family-benefits-calculator.html to help you estimate how much you might get.
Registered Education Savings Plan
A Registered Education Savings Plan (RESP) has long been the default plan used by Canadians to save for their child’s education after High School. You can contribute up to $50,000 of your own money into the plan.
An RESP has two major advantages for you:
1. You can boost your savings with The Canada Education Savings Grant (CESG), plus low-income families may also be able to access further grants from their provincial government education grants
2. You get tax-free growth while making contributions, but when you make withdrawals for educational expenses, the investment growth portion becomes the child’s taxable income. Because your child will be a student when they withdraw, their income is likely to be low, and so will be their tax rate, they may not have any tax to pay.
The biggest disadvantage of an RESP is if your child does not attend one of the governments specified Canadian educational organizations or does not seek further education after high school. With the new developments in how education can be delivered, more Canadian students will be able to access education outside of the country from the comfort of their bedroom.
If the RESP is not used, any grants received go back to the Canada Revenue Agency. You get your contributions back and any investment growth which is taxable at your personal rate, along with a 20% tax penalty.
Canada Education Savings Grant (CESG)
This grant entitles families with an RESP to receive up to $500/year up to a maximum of $7,200 before the child turns 18.
To gain the maximum, you need to contribute $36,000 of your own money to your RESP. You would also need to start the RESP soon after birth.
As new parents, if one of you were to suffer a major illness or injury, or even die, how would this impact your family and the financial plans for you and your child?
You should definitely consider life insurance, plus a critical illness insurance policy at least for the major income earner to protect your family. Insurance is a low-cost method of providing for your family if one of the parents is taken out of the picture, permanently.
We don’t like to think of death or a major illness preventing you from working. While these are less likely to happen to you while you are young, unfortunately it does happen for some.
Losing loved ones is an awful loss, but without appropriate insurance coverage, the financial goals for the surviving partner and children can be destroyed at the same time.
You can compare Life Insurance quotes from leading Canadian providers at PolicyMe. It’s fast, and you can apply online, or alternatively, seek advice from a qualified Financial Adviser.
If you have extended health care from work, make sure you add your new child.
This not only covers your child if they have any medical conditions, particularly at birth, but makes sure they are covered now for any major health challenges in the future.
Child Plan™ Whole Life Plan
Child Plan™ can be used for any financial need in your child’s lifetime, but it also doubles as an education fund. Considering it can be opened just 14 days after birth, Child Plan™ gives you so much more time to begin, and then finish, saving for your child’s post-secondary education.
However, it could also be used for funding a down payment on a home, starting a new business, or to provide financial security for their own family, or for any other purpose. You cannot make withdrawals before the child is 18, and the plan can never be taken by creditors.
The annual tax-free dividend provides unrivaled financial security and Child Plan™ is permanently funded after 20 years. One of the biggest differences between Child Plan™ and any other education fund for children is that this is a Whole Life Insurance plan, so your child will be permanently covered.
Child Plan™ is the fastest-growing alternative to RESP. Its gains are non-taxable, you can make withdrawals from the cash value after your child turns 18 years, and you have the option of continuing the plan, with or without regular contributions, until the death of the Life insured (the child).
Any time after your child turns 18 years of age, you can transfer ownership over to them. If the plan is still in place at the time of the child’s death, Child Plan™ will pay out the life insurance sum insured. The sum insured will be a far greater value than the cash value.
To see how the cash values and sum insured increase over time, you can request an illustration from https://www.insuranceforchildren.ca/request-illustration.
To learn more about Child Plan ™, please visit insuranceforchildren.ca.