RESPs - Education Savings

College graduation | Greenfeld Financial Management, Delta, BC

Saving for your children's education gives them a good financial head start. Consider these quick facts about the benefits of post-secondary education from Statistics Canada:

Canada’s future labour market will have a preference for skilled workers in a global, technologically advanced economy
College and university graduates are already more likely to have a full-time job, and more likely to keep it during an economic downturn
The average cost of post-secondary averages over $89,000 for a four year program (including housing).

Registered Education Savings Plans

BC Training & Education Savings Grants

Tax Free Savings Accounts

In Trust For Accounts

Registered Education Savings Plan

RESP

One of the best ways to save for your child’s future education is through a Registered Education Savings Plan (RESP).

No matter what your family income is, the government of Canada pays an amount of Canada Education Savings Grant (basic CESG) of 20% of annual personal contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

Taking advantage of this free money can go a long way to finance your child’s education down the road. Putting aside even small amounts each month will translate into substantial savings later on. When your child does attend a post-secondary institute, all your contributions are passed on to them tax-free and taxes are only paid on the investment growth and grants (usually at a much lower tax rate).

A summary of the most recent rules and details about RESPs is available on the Services Canada website.

What is the cost of waiting?

If you plan on funding your children's education, then taking advantage of the CESG early is super important.

Here is a calculator that allows you to see what the cost of waiting will be if you delay in opening up an RESP:

RESP Calculator

BC Training and Education Savings Grant (BCTESG)

Children of BC residents are eligible for the BC Training and Education Savings Grant (BCTESG). This is a provincial incentive designed to help families save for their children’s post-secondary education. The BCTESG is a $1,200 one-time grant to eligible children born on or after January 1, 2007. When an eligible child turns six years old, the subscriber may be able to apply for the grant.

BCTESG

TFSA

Tax Free Savings Account (TFSA)

The TFSA will allow taxpayers 18 and over to contribute up to $7,000 per year into the account where any income earned will grow tax-free and funds may be withdrawn with no tax implications. The range of investments available is essentially the same as provided with an RRSP. The major difference between the TFSA and an RRSP is that there is no deduction allowed for a TFSA. Although an RESP is preferable due to the government grants provided, if you would like to save funds above and beyond the RESP grant limits, the TFSA should be an attractive option.

In Trust For Accounts (ITFs)

These are investment accounts set up for a minor child, typically by a parent, in anticipation of the child taking control of the assets when they reach the age of majority, ordinarily age 18. Even though these are usually structured as ‘informal’ trusts without the same amount of documentation as a formal trust, the courts have held that they are in fact trusts and that the assets belong to the beneficiary (your child). Any income earned on the account (dividends and interest) will be attributed back to you as the contributor, whereas any capital gains will usually be attributed to the child. Prior to the introduction of the Canada Education Savings Grants (CESGs), in trust accounts were a fairly popular alternative to RESPs due to their flexibility. However, now that the CESGs are available it is usually more beneficial to establish and make contributions to an RESP. In cases where contributions hit the $50,000 maximum for RESPs, in trust accounts would certainly be an option worth considering.

Contact our office for additional information about how you can save for your children's education.

ITF