Family Financial Planning

A college or university education is very important to success in today's job market and will be even more so in the future. Approximately 65% of new jobs will require a post-secondary degree. Four years of study at a typical Canadian university can cost around $16,000 for tuition and books. If a student lives away from home, the cost will be even higher.

Saving funds for higher education

One way to plan for your children's education is to set aside a specific portion of your savings for that purpose. You can create savings programs which are in your children's names. These may include a Registered Education Savings Plan (RESP) and an in-trust account. An investment of just $200 each month can grow to $60,000 by the end of 15 years.

Registered Education Savings Plan (RESP)

An RESP is a tax-sheltered investment plan specifically intended to help you pay for your children's university or college education. You may contribute up to $5,000 per year per child to a lifetime maximum of $50,000.

RESP Benefits include:

Tax Savings

At the time of withdrawal, contributions are not taxed, only the investment income is taxed as a regular income in the student's hands. Since a student is unlikely to have much other income, he or she can expect to pay little if any tax on the funds.

Canada Education Savings Grant

An RESP also receives a federal government grant for a child's education. The Canada Education Savings Grant pays into an RESP a grant equal to 20% of the first $2,500 of an annual RESP contribution you make for each child under age 18. There is a maximum of $500 per child per year and a lifetime maximum of $7,200 in grants per child.

Multiple beneficiaries

You can name as many beneficiaries as you wish, and change them at any time.

Roll into an RRSP

Even if none of your beneficiaries enrolls in post-secondary education, you need not lose the income generated by your contributions. If the RESP is at least 10 years old, you can roll the income into your own or a spousal RRSP (up to a maximum amount) provided there is unused contribution room.

In-trust account

An in-trust account is an investment account you can open on behalf of a child. The in-trust account is not eligible for any government grants, and the contributor has no right to recover the funds in the account since they belong exclusively to the child. The in-trust account offers the benefit of income splitting. Until you child reaches the age of majority, you pay the tax on any interest or dividend income generated by the contributions, while your child pays the tax on any capital gains and on any reinvested interest or dividend income.