Top 4 Reasons to Invest Your Tax Refund in Your Child’s RESP
Last month, many of us had a nice sum of cash dropped in our bank accounts: the much-anticipated tax refund. This year, according to the Canada Revenue Agency, around 60 per cent of tax returns processed yielded refunds, with the average cheque or direct deposit from the CRA coming in at $1,7031. Every year before the drop, I dream about all the possibilities, as I am sure you do too; that cheap beach vacation, those shoes I’ve been eyeing or that end table I keep looking at online. Instead of getting all this stuff, why not do something that you’ll thank yourself for a decade or so down the line?
Here are four reasons to invest your tax refund in your child’s RESP:
1) Post-secondary tuition has been rising steadily since I was in university, and it continues to skyrocket. According to Statistics Canada, an average undergraduates pay 40 per cent more in tuition than they did over a decade ago2. if you’re hoping your child will choose a career in healthcare, dental or medicine, be aware that those students paid some of the highest tuition, followed closely by those going into an MBA program.
2) With uncertain industry growth and technology playing a much larger role in many traditional fields, higher education is becoming a priority when it comes to getting employment in the job market. Graduates are already facing an uphill battle when competing for jobs. Many now find themselves completing postgraduate certificates and diplomas to augment their university degrees. It has become common to have both – you get the degree for your education and analytical skills and then you complete the hands-on certification to actually secure the job. In the end, it adds up to more tuition.
3) As it stands, less than half of Canadian children have RESPs. An RESP provides tax-sheltered growth on savings. With government contributions, that means if the average tax refund were invested in an RESP from the time babies were born up until their 18th birthdays, each Canadian child would have over $53,000 available for post-secondary education.3 That will take care of a healthy portion of tuition.
4) The biggest and best reason is simply that it is free money. While you will want to spend your tax return on purchases that may reduce what’s in your back account, contributing to an RESP will happily grow this total amount. If you have children or grandchildren, a contribution to a registered education savings plan will immediately earn a 20-per-cent bonus. The Canada Education Savings Grant adds $0.20 to every dollar you contribute, up to $500 per year. The lifetime maximum per child is $7,200. Nothing can beat free money for taking care of your child’s future!
Do your due diligence before you cash that tax refund cheque. If you use it wisely now, and apply it to RESPs for the little ones in your family, the real value of that money will hit you when they walk through the doors of college or university, a few years from now… thanks to your educated decision today!