Americans have it better

When it comes to saving for a child’s education, Americans are allowed to tax shelter a lot more money than we are.

Under current Canadian law, the maximum you can contribute to a registered education savings plan per child is $44,000, at a rate not to exceed $4,000 a year. There’s no tax deduction but the money grows tax sheltered until withdrawn for educational purposes. At that time, it’s taxed in the hands of the student.

Some U.S. states have government-authorized education savings plans that make ours look cheap. Take the recently launched Florida College Investment Plan, for example. It allows contributions of up to US$283,000 per student (that’s right, about C$450,000, ten times our limit). Investment income compounds tax-free, plus no tax is payable when the money is taken out for qualified college costs like tuition, residence fees, books, etc.

Granted, U.S. post-secondary schools are more expensive than ours, but the difference is astounding. The only thing we have going for us is the Canada Education Savings Grant that is worth up to $400 a year in government payments. It’s not a lot, but it’s better than nothing so take aantage of it.

Adapted from an article that originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that offers conservative investment advice from some of Canada’s top financial experts. For a three-month no-risk trial membership at a special rate of just $19.97 plus tax!