Efficient saving for our children’s future

Parents can ready their children for future financial security by regularly investing over their lifetime. What questions should you ask yourself when contributing to your children's savings plans?

What is an efficient way to save for my children’s future?

Many options are available to families. A recommendation is to consider the tools provided by the Canada Revenue Agency (CRA): the Registered Education Savings Plan (RESP) to fund future education and the Registered Disability Savings Plan (RDSP) to fund future financial security for an individual that qualifies for the disability tax credit. These two plans work in a similar fashion but have different limits and rules. Some basic parameters:

  • Age limit: contributions allowed until the beneficiaries are 31 years of age (RESP) and 59 years of age (RDSP)
  • Contribution limit: maximum lifetime limit of $50,000 per beneficiary (RESP) and $200,000 per beneficiary (RDSP)

Why consider using the CRA programs when I get no tax deduction from the contribution?

CRA programs have many benefits. One major benefit is the funds in the RESP can be invested and any earnings on these funds are not taxed until removed by the beneficiary to finance future education or in the case of RDSPs to fund required future disability assistance. The second benefit is the Canada Education Savings Grant (CESG) contributes an additional 20 per cent on annual RESP contributions (to a maximum of $500 per year) to a maximum lifetime limit of $7,200 up until the beneficiaries turn 17 years of age. The Canada Disability Savings Grant (CDSG) contributes an additional 100 per cent of annual RDSP contributions of $1,000 per year to a maximum lifetime limit of $70,000.

Where can I find the funds to regularly contribute to a savings plan?

When possible, use federal child and family benefit payments to contribute to a savings plan on a monthly, automatic basis. You receive these payments by direct bank deposit monthly, and a financial institution can assist you with setting up both the savings plan and an automatic monthly transfer of the deposit into the savings plan.

Child and family benefits are updated annually after you file your latest income tax and benefit return. You can work with your financial institution to incorporate any changes and decide how you would like these reflected in your savings plan. The amount you contribute can be changed at any time, making this a very flexible and convenient option to save.

This is outside of using salary and funds that may be fully committed to paying for day-to-day living expenditures. Please note that financial institutions encourage setting up automatic payments for direct deposit into the savings plans, as well as registering to receive all government grants currently available for these contributions. They also facilitate limited investments of these funds to protect your principal while allowing for additional increases in the savings balances.

Using government-provided benefits and government-provided grants can cost effectively help start the savings to invest in your children’s future.

Keep the conversation going

Starting with small regular investments over a child’s lifetime, parents can comfortably get them ready for future financial security.  What amount can you set aside to facilitate this savings today?  Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Sara Jimenez, CPA, CA, CFF, CFE

Partner, SG LLP Chartered Professional Accountants