Only half of parents currently saving for their child’s education
Four-in-ten (42 per cent) Canadian families with children under the age of 12 are not taking full advantage of tax savings, including 17 per cent who say they are not aware of what options are available to them, according to a new RBC Tax Planning Poll.
“When you are raising a family, it’s important to stretch every dollar and making the most of available tax savings can make a big difference,” said Patricia Domingo, Investment & Retirement planner, RBC. “By taking advantage of available tax credits and incentives, parents can maximize their tax returns and put that money toward their saving priorities.”
The RBC poll also found that just over half (56 per cent) of young families are currently saving for their child’s post-secondary education. Of the 44 per cent who are not currently saving, nine per cent feel they won’t need to, but the majority (84 per cent) of the rest said that they would like to, but are unable due to their current financial situation.
The top financial challenges for parents are having money left over from paycheque-to-paycheque (30 per cent), followed by paying down debt (28 per cent).
“It can be challenging for young families to balance savings priorities, but starting with putting aside just a small amount on a regular basis can make a meaningful difference in financing your child’s education,” said Domingo. “A Registered Education Savings Plan (RESP) is a good option for parents to consider as there are tax advantages and government matching programs to help make your child’s education goals a reality.”
RBC highlights the following tips for young families looking to make the most of tax savings and their financial planning:
Open a Registered Education Savings Plan –RESPs are flexible savings plans that allow money deposited for your child’s post-secondary education to grow tax-free until they attend university or college.
The federal government supplements RESPs through the Canada Education Savings Grant (CESG), which matches contributions by 20 per cent up to an annual maximum of $500 or $7,200 over the life of a plan. Upon withdrawal, the income is taxed in the child’s hands, so there should be little or no tax payable given the child will be in a lower tax bracket. Additional federal grants are available for lower-income families and Alberta and Quebec also offer provincially-based savings incentives to boost education savings.
Open a Tax-Free Savings Account –A TFSAallowsyou to grow your money tax-free, up to $5,000 per year. Also, room from your allowed unused contribution can be carried forward to future years and any money withdrawn will be added to unused contribution room so you can re-contribute that money starting the following year.
Take advantage of child care deductions –Child care expenses, such as daycare, nannies, summer camp and before and after- school programs are eligible for a deduction against income. The claim amount is actual cost of expenses, up to a specific dollar amount, and is claimed by the parent with the lowest taxable income.
Take advantage of the Child Amount Tax Credit –This creditallows you to claim a tax credit on your income tax return based on an amount of $2,131 for each child under the age of 18. This can also be applied against tax deducted at source by your employer.
Take advantage of the Children’s Fitness Amount Tax Credit –This creditentitles you to claim up to $500 per child to cover costs of enrolment in a qualifying fitness program. To claim the credit on your 2010 tax return, payments must have been made on or before Dec. 31, 2010.
Parents can find more information about money management, simplifying finances and helping families achieve their financial goals, by visiting rbc.com/couplesandfamilies. Get the advice you need and download your own personalized Guide to Everyday Finance.