Strategies for Students to Access More Financial Support in College: The first term for new college students is almost over. There is a new limit on how much money they can take out of their registered school savings plans. They might want to think about how much money they should take out now.
Strategies for Students to Access More Financial Support in College
In the 2023 budget, Ottawa raised the cap on how much money can be taken out of a RESP to pay for school for the first time in 25 years. It went from $5,000 to $8,000 for full-time students and from $2,500 to $4,000 for part-time students. After the first 13 weeks, a student can get as much money from an EAP as they need, as long as they are still in school after high school.
An EAP can be a government grant or a payment on your income.
For example, the Canada Education Savings Grant adds 20% to the first $2,500 that is saved each year until the child is 17, up to $7,200. Kids can also add $500 to their RESP the first year and another $100 every year after that, up to a total of $2,000 per child.
Christine Van Cauwenberghe, head of financial planning at IG Wealth Management, advised people to take as much grant and income as early as possible.
When money is taken out of a RESP, the amounts that were put in are not taxed since they were taxed initially. EAP students, on the other hand, are taxed, but since they can claim tuition tax credits, they probably don’t make a lot of money and won’t have to pay much or any tax. This is what Van Cauwenberghe said.
Money Mantras from Top Financial Advisors: Wealth Resolutions 2024
They can get the investment income in the form of an accumulated income payment (AIP) if they still have EAPs left over after they finish. There is an extra 20% tax that the parent, who is also known as the user, will have to pay on the AIP.
To make sure they have enough money to put into their child’s RESP, anyone should open an account right away. This gives the growth and income time to set in. People who want to get money from the government, like the Canada Learning Bond, don’t have to put money into their child’s RESP.
Michelle Seymour, who works at ATB Financial and is in charge of wealth planning, said, “The longer you leave your money, the longer they have to grow.”
Seymour said that most people who open a RESP are parents, but grandparents can also do it.
“I see it in people. Someone said, “Some grandparents want to give a gift.” She also said it was another way to pay for school for the next generation.
This is why Van Cauwenberghe said it’s very important for students and customers to learn about RESPs: not many people know about them. They might miss out on chances to make money and government benefits if they don’t.
Almost two times as many families with kids under 18 had a RESP from 1999 to 2005, according to Statistics Canada. The number rose from 15.9% to 33%. After that, growth fell to almost 47% in 2012, 51% in 2016, and 53% in 2019.
But not everyone is doing it. RESPs are very different for parents with low salaries and parents with high incomes, according to a recent study by Community Savings Credit Union. In British Columbia, only about four fifths of parents make a lot of money.
Credit union says low-income families are losing nearly $280 million in interest and government aid.
Burning Mortgage Rates: Millennials are Feeling the Financial Sting
