Tax-Free Savings Account: A TFSA is an effective education savings option. Those with unused maximum TFSA contribution room can redirect some of their savings from a taxable account to a TFSA. Savings grow tax-free, and funds can be withdrawn in the future without incurring any taxes to help finance a child's education.
Trust: One-third of Canadian parents do not realize that they can set up a trust to save for post-secondary education. Whether funded by way of a gift or loan, a trust can be created specifying terms and conditions that ensure that the funds are used for the purpose it was intended - schooling - rather than for the child's personal wants and needs.
Corporate Dividends: Forty-four per cent of parents are unaware how corporate dividends can play a part in saving for post-secondary education. Those who are incorporated professionals, or have an incorporated family business, can explore having their child own shares of the company and later, under the right circumstances, pay out company dividends to fund a child's education - beginning the calendar year in which the child turns 18. Dividends are taxed at the child's tax bracket, making it a tax-effective income-splitting strategy.
Life Insurance: Parents and grandparents can tap into excess cash value in their insurance policy to help pay for college or university. One of the downsides is that the policyholder loses control over the money put into the policy and the coverage offered by the contract.
"It's important to look into all options available to save for your child's education," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. "You will likely need more money than you anticipate. Consider one option, or a combination of options, that suit your situation to make the most of your money. Proper planning will make it easier to save and also set your children on a path to future financial success."
More generally, Mr. Buttigieg noted that BMO Financial Group is committed to helping Canadian children develop their financial literacy. BMO is supporting Talk With Our Kids About Money Day, which will be taking place on April 17, 2013 at schools throughout Toronto and Montreal. The program, designed to be taught both in school and at home, was developed by the Canadian Foundation for Economic Education (CFEE); it offers families, students and teachers a simple way to help young Canadians learn more about money and personal finances. For more information on Talk With Our Kids About Money Day please visit: www.talkwithourkidsaboutmoney.com.
To view a copy of the full report, please visit: www.bmo.com/wealthinstitute.
Get the latest BMO press releases via Twitter by following @BMOmedia.
Survey results cited in this release are from online interviews with a random sample of 1,400 Canadians, including a sub-sample of 520 parents with children under 18, conducted between February 7th and February 11th, 2013. A probability sample of this size would be accurate to +/- 4.3%, 19 times out of 20.
Rachael McKay, Toronto
Valerie Doucet, Montreal
Laurie Grant, Vancouver
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