Dennis Hammer is a writer and finance nerd with six years of investing experience. He writes about personal finance for Wealthsimple. Dennis also manages his own investment portfolio and has funded several businesses in the past. Dennis holds a Bachelor's degree from the University of Connecticut.
You want your kids to have the best education possible, but college is expensive. Wouldn’t it be great if you had some money for their education fund?
Good news, If you’re a resident of Canada, the government will do exactly that. With the help of the Canada Learning Bond, you can build an investment fund for your child to mitigate some of the cost of their education.
What is the Canada Learning Bond?
The Canada Learning Bond (CLB) is a grant from the Canadian government. It helps low-income families save money to send their children to post-secondary education, which includes apprenticeships, vocational schools, colleges, and universities.
The bond works by depositing money for each eligible child into a Registered Education Savings Plan (RESP). In the first year of eligibility, the CLB deposits $500 per child the first year and $100 per child every year until each child turns 15. The bond offers a maximum benefit of $2,000 per child and you have to have filed your taxes to avail of the bond.
Beneficiaries of the RESP don’t have to use the money right after they graduate high school. They can keep the money in the account for 35 years. If they don’t enroll in a qualified educational program by then, the government takes back the money it deposited. Any funds you deposited, however, are yours to keep. The interest earned off the government’s money can be spent on education, rolled into a retirement account, or simply returned.
You may be thinking, “Wait a minute. $2,000 isn’t a lot of money. I can't pay for my kid's college with that.” Fortunately, you’ll most likely end up with far more than $2,000.
Your RESP isn’t just a savings plan. It’s also an investment account. You don’t pay taxes on the investment earnings as long as they stay within the account. You can choose investment products based on your timeline, goals, and tolerance to risk. This means that over time that money could grow into far more than $2,000, especially if you open an RESP and start collecting CLB as soon as your child is born.
Furthermore, you and your family and friends can contribute to the RESP. All of this money grows tax-free. It's only taxed when your child withdraws from the account (and at a much lower rate). If you put your own money aside for your child’s future education, the RESP is the best place to keep it.
Canada Learning Bond Eligibility
The National Child Benefit program determines which families are eligible to receive the CLB. Children are only eligible if they were born on or after January 1, 2004, have a valid Social Insurance Number (SIN), reside in Canada, and are named the beneficiary in a RESP. Eligibility for the bond is based on the combined income of the child’s primary caregiver and his/her partner, as well as the number of other children in the household. See the Canada Learning Bond Eligibility table for more information.
Once a person is deemed eligible, the government will start depositing money for each child, regardless of whether the parent contributes. If a family does not apply for the CLB right away, they can apply up until the year your child turns 15 and still receive the payments they missed.
How to Apply for the Canada Learning Bond
Typically, you’ll receive a letter from the Canadian government if your child is eligible to receive the CLB. If you don’t receive a letter, your child may still be eligible.
First, gather some information. You’ll need your Social Insurance Number (or the Business Number if you’re an agency caring for the child) and the child’s SIN.
Next, simply open a Registered Education Savings Plan with a participating RESP promoter. The RESP promoter will submit an application for the CLB on your behalf. The RESP is the only type of account that can receive CLB funds from the Canadian government. You do not have to make any contributions to apply for the CLB.
Once your RESP is open, check to make sure the funds are deposited into the account. You will only receive the CLB for years you qualify for it. So if you don't file your taxes or if your income increases suddenly one year, your application for that year may be denied.
If you open an RESP with Wealthsimple, we will automatically apply you for your CBL payment every year. So what are you waiting for, Invest today for a brighter future tomorrow. Take our risk-free survey and we'll provide you with a personalized portfolio to get you saving for the education that your children deserve.