Insurance: RRSP? RESP?? How about both?!

You’re a parent and that means two things: Time and finances are always tight. This year, as the time to the tax deadline rapidly shrinks and the holiday bills continue to pile up, you may also be facing this common dilemma: Should we use our limited financial resources to save for retirement through Registered Retirement Savings Plans (RRSPs), or to save for our children’s education through Registered Education Savings Plans (RESPs)?

Here’s the easy answer: Do both by making your RRSP contribution before February 28, 2007 and using the resulting tax refund to make an RESP contribution. You’ll get double the benefits because your child’s RESP will likely enjoy the additional advantage of free cash from the federal government in the form of a Canada Education Savings Grant.

It’s a win-win-win situation because:

When you make your maximum allowable RRSP contribution by the 2007 deadline, you will gain immediate tax-savings from a resulting tax refund.
Paid directly into your child’s RESP, the Canada Education Savings Grant (CES Grant) provides each eligible child with an additional 20% in free grant money on the first $2,000 of an annual RESP contribution to a yearly maximum of $400 and a lifetime maximum of $7,200. Even if you were unable to make enough of an RESP contribution to access the CES Grant money in previous years, you can make up for it this year (or in future years) and get the grant money your child would have received in those earlier years.
More recently, the government made an Additional CES Grant available that could add up to another $100 a year in free grant money. You can access the additional CES Grant if your household income is under $72,000 but if you don’t apply, the grant “room” does not carry forward.

The 2007 RRSP deadline is just around the corner so start saving right now. That way, you’ll be able to make your maximum RRSP contribution this year (and maybe even fill-up some or all of your left-over contribution room from previous years) and get a nice tax-deduction – which is extra money that you’ll be able to invest in your child’s RESP to help offset the rising cost of education. Plus, your child’s RESP will benefit from as much ‘free’ government money as possible and will also be allowed to potentially grow on a tax-deferred basis until your child enrols in education after high school.

Your professional advisor can help you take full advantage of this and other tax-saving, income-building opportunities to feather your retirement nest and get your young scholars off to the best start in life. (Submitted by Damon Smith, Investors Group Financial Services Inc.) For more information call 1.888.335.1362.

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. For more information on this topic please contact your Investors Group Consultant.

printer friendly

Email this article