What is the Best Tax Free Savings Account For Children?
It is said that tomorrow’s doctors, lawyers, judges, and engineers are studying in the schools and colleges today. We have to provide our children quality education and a good childhood. This is important because our children will shape our future, and it is in our hands how we shape their future.
For many Canadian parents the rising cost of their children’s education is of concern. Planning for a child’s education is very important to protect your financial balance. According to Statistics Canada the average annual tuition for a Canadian university undergrad was $4,347 in 2006-07. The fee varies according to the choice of institution and the program enrolled.
For example the cost of college programs in Quebec is different from those offered in Vancouver or Ontario. Similarly cost of an undergrad arts program is significantly lower than an undergrad dentistry, medicine, or engineering program.
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You should already have a roadmap for your child’s education but do you also have a financial plan to meet the cost of education? Do you think you can save enough to give your child a decent education? The following paragraphs will highlight how a tax free savings account can be a good option to meet your child’s expenses.
A tax free savings account can be a good savings solution for parents planning for their children’s education. Following are some salient points.
1. Starting in 2009 Canadians aged 18 and older can save up to $5,000 every year in a TFSA. Due to the age restriction children below the age 18 are not eligible to open a TFSA account.
2. Contributions to a TFSA are not tax deductible but investment income including capital gains earned in a TFSA are tax -free.
3. Withdrawals from the TFSA are not taxable and the account holder can withdraw funds at any time. Flexible contribution rules make deposits and withdrawals easy. People may choose to open accounts with spousal contributions to save for their children’s expenditures. The graph below shows how a couple can contribute $5000 or less to the TFSA each year. Please note that since the couple was not able to contribute 5000$ in year 4 the rollover balance of contribution of 1500$ can be contributed in the following years. Hence in the following year the couple contributes 6500$ in all.
4. The money from the account can be withdrawn for any purpose. Even if a couple primarily wanted to save for their child’s education, they still may use the money to meet other needs as well.
5. The 2007 Federal Budget had amended the RESP on the following lines which is very beneficial for Canadian parents. Firstly the $4,000 limit on annual RESP contributions was removed. Secondly the lifetime RESP contribution limit was increased to $50,000 from $42,000. Both these changes offered more flexibility within the account. A person can now save more with the RESP. Thirdly the RESP account can be held for 36 years. Fourthly the maximum annual amount of basic CESG was increased to $500 from $400. These changes are likely to benefit the higher income group but certainly provide more savings options to parents in general.
6. Please note that there are different investment vehicles for investors. The issue is to have the correct savings strategy. At times it is better to consolidate your savings and at times it is better to put your savings in different baskets. For example you must save in a TFSA as soon as you turn 18 and have a propensity to save decent amounts. At this level you are not in a higher tax bracket to use RRSPs. As soon as your income increases you must consider investing in a RRSP. Later you can convert it into a RIF to get pension funds credit. Finally as soon as you plan to raise a family you must think about saving in RESPs.
Remember that if you are already saving in the Registered Education Savings Plan (RESP) it remains the best place to save for a child’s education because any contribution attracts the Canada Education Savings Grants (CESG) resulting in an immediate boost of at least 20%. With the introduction of the TFSA it is best to contribute enough to the RESP to get the maximum allowed CESG of $7,200 per child (for a total RESP contribution of $36,000) and save more in a TFSA.
It is good to save for your children’s future. Every parent wants to give his child the best upbringing and schooling. He knows that good education can shape the future of his child. He also knows that shelling out a large sum of money in a single go is difficult. Many banks, financial institutions, and brokerage firms are offering different TSFA options. It is best to set your financial goals keeping in mind the money required for your child’s education and to consider all the options the various firms are offering.
Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help. That’s why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s likely the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).
The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation. With the TFSA Canadians from all income levels and all walks of life can benefit.
Download your Free Special Independent Review of the TFSA at: http://TaxFreeSavingsAccountInfo.com/
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