Dad School: Financing Fatherhood

I have talked about money on two previous occasions, once in a general sense, and once with respect to Registered Education Savings Plans (“RESP”s). Today Jen and I had an appointment at the bank. It wasn't anything too wild but it inspired me to set out a list of financial plans, payments and tools that every father should know about in order to help pay for their lil’ ones diapers, toys and other goodies. This is a fairly lengthy and dry post but trust me, every little bit helps!  I  promise to make up for this post with more zany ones soon! Since this information is Canadian-specific I apologize to overseas readers.

Universal Child Care Benefit: $100 Cdn per month for every child under six from the Federal Government. All you need to do is apply!

Canada Child Tax Benefit: more money that you can apply for from the Federal Government. You only get this if your child is disabled and/or your family has a lower income.

Refundable Tax Credit for Child Assistance: a long winded way of saying you will get more money – this time from the province of Quebec. You get four cheques per year of about $150-200 Cdn and the amount you get varies depending on how much money you make. I haven’t checked but citizens in other provinces in Canada probably get something similar.

Income Tax Credits for Parents: Canadians pay income tax around this time of year. It sucks. But if you have children there are a couple of tax credits (ways of reducing how much tax you pay), which you should remember. Note that this is based on the 2010 tax year:

·    Line 214: Tax credit for childcare expenses to pay for daycare or a nanny.
·    Line 305: Tax credit for eligible dependants (i.e. children) if you’re a single parent.
·    Line 367: Tax credit for children that can be claimed when a child is born.
·    Line 365: Children’s fitness tax credit.
·    Line 313: Tax credit for adoption expenses.
·    Line 324: Tax credit for tuition that parents forked over for their kids.

There may be other deductions if your child is disabled or if you have lower income. There may also be provincial tax credits.

RESPs: as I mentioned in a previous post, these are a great way of saving money for your child’s education. Anything you invest (stock, mutual fund, cash, etc.) is topped up by the Federal Government in up to two ways: Child Education Savings Grant (everyone can get this) and/or Child Learning Bond (more money for lower income families).

Tax Free Savings Account (or “TFSA”): TFSAs are not really directly connected to raising children. Any money that you invest into a TFSA (stock, mutual fund, cash, etc) grows tax-free. For example, say you bought a $100 stock and sold it for $150. Normally, you would have to pay tax on the $50 difference. Conversely, anything you make on a TFSA investment isn’t taxed.

TFSAs are also really flexible. You can take the money in and out (within limits) which means it’s there if you need it in an emergency.

TFSAs aren’t directly connected to raising children. However, by paying less tax you do get the immediate benefit of having more money to do fun stuff with your family. Also, with all the financial pressures of being a parent it can be easy to forget to set aside any money for the future, something which I’m betting a lot of parents come to regret later.

RRSPs

RRSPs are the most complicated of the financial stuff I’ll be discussing today so I’ve saved them for last. Like TFSA, anything you make on an RRSP investment isn’t taxed. The catch with RRSPs however is that they aren’t that flexible (you are supposed to use them for retirement) and you’ll eventually be taxed on anything you made when you retire and cash the RRSP out. However, because you won’t be working at that point, in theory at least, you’ll likely be taxed less.

The bonus with RRSPs is that they encourage you to save because when calculating your income tax, your income is reduced by the amount of money you invest. For example, say you made $50000. If you buy $1000 worth of RRSPs you are taxed as if you only made $49000, which means you pay less income tax.

Like TFSAs, RRSPs aren’t directly connected to raising children. However, in my book, more money in the long run equals less stress on a family, which is invaluable.