LEARNING BOND: Federal gov’t will give you $500 for each child, and then $100 a year
SASKATOON —Many low-income Canadian families don’t know how easy it is to qualify for “free money” to kick start a Registered Education Savings Plan. In fact, an eligible low-income parent does not need to contribute a dime to open an RESP.
— POSTMEDIA NEWS FILES If you’re a low-income parent, it’s easy to qualify for ‘free money’ from the government to get your child’s Registered Education Savings Plan going. But do your homework or you may miss out on the full amount you’re entitled to.
Maybe you have never dreamt of opening an RESP because you feel you would never have enough money to seek financial advice.
If you have children born Jan. 1, 2004, or later and your family net income was under $ 40,970, then you can qualify for the National Child Benefit Supplement. That’s something mothers of young children normally receive on the 20th of each month along with their Child Tax Benefit.
If you receive an NCB Supplement, you also qualify for a $500 Canada Learning Bond. You need to complete some paperwork to open your RESP and apply for the CLB.
Before opening an RESP, you need to obtain a Social Insurance Number for each child. Bring your children’s birth certificates to your local Service Canada office.
Once you have your children’s SINs, you can go to your bank or credit union branch, for example, and open a Family Beneficiary RESP. You do not need to put money into the RESP to open the account. Name your children as RESP beneficiaries. Apply for the Canada Learning Bond for each beneficiary who is age six and younger.
For each eligible child, the government will deposit a free $500 CLB for your RESP. The first CLB payment includes an additional $25 to help cover the cost of opening the RESP account (www.servicecana da.gc.ca/eng/goc/resp.shtml). For each subsequent year your net family income is below $40,970 (which entitles you to receive the monthly NCB Supplement) your children would qualify for ongoing annual $100 CLB instalments until age 15.
With accumulating compound interest your RESP can grow to more than $2,500. This RESP money can be used to pay for your child’s fullor part-time studies in an apprenticeship program, trade school, college or university.
That $2,500 won’t pay all the costs of post-secondary education, but your child can live at home and find a job during the summers to help cover more of the costs.
When your child enrols in a postsecondary course and receives the RESP payout, your child reports this as taxable income. However, a student would probably not actually pay any tax thanks to the basic personal and tuition tax credits.
What if grandparents want to help out by giving you some additional cash so you can contribute more money to your child’s RESP account? Your additional deposit can qualify for a Canada Education Savings Grant (www.canlearn.ca/ eng/saving/cesg/index.shtml).
If your family income is below $40,970, you should be able to get a 40-per-cent grant on the first $500 contributed each year.
If your family net income is between $40,970 and $81,941, you should get a 30-per-cent grant on the first $ 500 contributed each year. Note that a parent-subscriber, whose family income is below $81,941, must specifically apply to receive the $50 or $100 additional grant on top of the basic 20-per-cent CESG grant.
Statistics Canada has found that nearly half of parent-subscribers who already have RESPs receive only the basic 20-per-cent CESG, when, in fact, they are eligible for the additional $50 or $100 of CESG.
Applying is as simple as putting a check mark in the little box beside “Additional Canada Education Savings Grant” on the application form. Most financial institutions apparently do very little to promote the higher-percentage CESG and CLB because of all the paperwork involved in setting up small accounts.
If you are a low-income parent with a child six years of age or younger, apply for the “free money” that’s available to start an RESP.
Terry McBride is a member of Advocis (the Financial Advisors Association of Canada). This article provides general information and should not be considered personal investment or tax-planning advice.
