Tax time is family time
The estimated cost in Canada of raising a child from birth to age 18 is about $180,000. Having kids is expensive: have three and you're looking at spending more than half a million dollars during those child-rearing years.
If these numbers fill you with dread, don't despair. There are times when having children actually pays off, and that time is now: tax season.
OK, so you don't get to recoup all of your costs, but families with children can take advantage of a number of tax breaks from the federal government and even avail themselves of some grant money.
Families not taking advantage of tax savings
A recent RBC Tax Planning Poll found that 42 per cent of families with children under the age of 12 are not reaping the full benefits of tax savings, while 17 per cent are simply not aware of the options available to them.
Most families know how important it is to stretch every dollar, but not making the most of available tax savings is like flushing money down the toilet. "By taking advantage of available tax credits and incentives, parents can maximize their tax returns and put that money toward their saving priorities," says Patricia Domingo, an investment and retirement planner with RBC.
For many families that includes saving for their children's postsecondary education. While the RBC poll found that 56 per cent of young families are doing so, of the 44 per cent not currently saving, the majority said they would like to but simply can't afford it due to income restraints or paying down debt.
"I think most families would want to be able to pay for their child's education," says Domingo, adding the trick is to start early and put aside whatever you can -- even a small amount now will add up over the lifetime of the child, and you can always contribute more when financial circumstances allow. "Parents shouldn't think they need to do it all now," she says.
The ins and outs of RESPs
Setting up a Registered Education Savings Plan, or RESP, is a good starting point because there are tax advantages (money deposited grows tax-free until it is withdrawn to attend school), and the federal government supplements RESPs through the Canada Education Savings Grant, or CESG. This means it will match your contribution by up to 20 per cent to a maximum of $500 a year or $7,200 over the life of a plan.
Another option is to open a Tax-Free Savings Account, or TFSA, to which you can contribute up to $5,000 a year and within which money grows tax-free. For those debating between an RESP and keeping the money slightly more liquid in a TFSA, Domingo says the "TFSA is great, but if one is doing it for the purpose of education, then I'd recommend an RESP because not ever on an investment are you guaranteed 20 per cent."