It’s back to school time! For parents and children it’s time to get back into the school year routine. Your child may be years away from attending college or university, but it’s never too early to start planning. As a parent you’re well aware sending your child to college or university is expensive, but do you know how much it truly costs?

According to a recent poll by CIBC, four out of five parents aren't able to accurately estimate university tuition fees. The average tuition fee for an undergraduate program is $6,191 per year, according to StatsCan. Only 20 percent of parents correctly estimated that tuition fees range from $6,000 to $9,999.

Tuition fees aren’t the only thing causing confusion amongst parents. 37 per cent of parents said they had no idea how much to budget for non-tuition expenses, such as books, supplies, groceries and accommodations.

Putting your child through college or university doesn’t come cheap. Parents can be expected to shell out on average $25,000 per year or $100,000 over a four-year university degree.

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Many Parents Don’t Understand RESPs

Registered Education Savings Plans (RESPs) are specifically set up for parents to save towards their children’s education, yet there’s a lot of confusion surrounding them. Despite the confusion, many parents still use them: 76 percent of parents opened an RESP to save toward their children’s post-secondary education.

A misunderstanding of RESP rules means parents may not be taking full advantage of their child’s RESP. 31 percent of parents were surprised to learn they could catch up on claiming Canada Education Savings Grants (CESG) in a following year. Although RRSPs and RESPs may both be registered account with Canada Revenue Agency, only RRSP contributions are tax deductible; RESP contributions aren’t. Despite this, 53 percent of parents believed they could claim RESP contributions on their tax return. Furthermore, 45 percent of parents believe the money from their child’s RESP can only be used to pay tuition fees, when this simply isn’t true; it can go towards other education-related expenses.

What You Need to Know About RESPs

To take full advantage of the RESP, it helps to understand the rules. You may not receive a tax deduction for contributing to an RESP, but like an RRSP, your money grows tax-free inside. You may be wondering why you wouldn’t simply save for your child’s education in your Tax-Free Savings Account (TFSA). What makes the RESP advantageous is RESP contributions are eligible for a 20 percent government grant. You can maximize the grant by contributing $2,500 each year (that works out to an annual grant of $500). Not able to take advantage of the full grant in a year? No problem. You can catch up and qualify for grants for previous years. Post-secondary education is costly – the good news is you can contribute a lifetime maximum of $50,000 to your child’s RESP until they reach age 31.

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Once your son or daughter is ready to go to college or university, any money withdrawn from the RESP is taxed in their hands. This can lead to major tax savings, since your child is usually at a lower tax bracket (he or she may not work or work part-time during college or university). On top of that he’ll be eligible for the tuition, education, and textbook amounts tax credit, further lessening any taxes payable.

The RESP is flexible and can hold various investment types. SmartMoney has Exchange Traded Funds (ETFS), perfect to hold inside your child’s RESP and save towards their post-secondary education.

This is only a brief overview of RESPs. You can read more on the Canada Revenue Agency website.

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