Parents dream of giving their children the best possible post-secondary education. Whether this dream includes university, college, vocational school or technical school; education costs money. If you have children, are planning to start a family, have a grandchild, niece, nephew, relative or friends you would like to save for, this information can help get you started.
How much do you need to save?
To create an education savings program you will need to estimate the amount of money that you will need to save, including books, tuition and living expenses. The education savings calculator at www.canada.ca can help you determine the future cost of post-secondary education, and how much money you will need to save to meet your goal. A financial advisor can also help you set up a plan that meets your needs.
Personal savings plan: You can include saving for your child’s education as part of your personal savings plan. Just as you set aside money for your retirement and vacations, you can reserve money for your child’s education.
Special Savings/ Investment Programs: These options allow for you to save money in your child’s name. This can be done through a guaranteed investment certificate, savings bond, mutual fund, stock or other investment choices.
Informal Trusts: This is a regular (non-registered) investment account set up for the purpose of investing funds for a child. The money is held in trust for the child until they reach the age of majority. There are no restrictions on the amount you can contribute to this account. Income earned on the contributions is not tax-sheltered.
Registered Education Savings Plans (RESPs): RESPs allow your money to appreciate tax-free in a plan until the beneficiary is ready to attend an eligible post-secondary school. The limit on lifetime contributions for any one beneficiary is $50,000. The Government of Canada will help with savings incentives that are only available if you have an RESP. These incentives include the Canada Education Savings Grant and the Canada Learning Bond:
- The Canada Education Savings Grant is a government incentive. For an eligible beneficiary under the age of 18, the government will add 20 per cent annually to the first $2,500 contributed to an RESP. The grant proceeds are invested along with your contributions.
- Canada Learning Bond is another government incentive to help children in modest-income families. Under the program, the Government of Canada will make a one-time payment of $500 into an RESP plus provide $100 a year until the child turns 15 years old, to a maximum of $2000. You can open an RESP without making a contribution or deposit. The Canada Learning Bond is available to families receiving the National Child Benefit Supplement under the Canada Child Tax Benefit for children born after December 31, 2003.
The amount of money you put into an RESP depends on the type of RESP that you choose. Regardless of the type of RESP that you use, the Government of Canada will still add to your savings. Research and learn about the various types of RESPs that are available.
You can find more information about government education savings programs at www.canada.ca/en/employment-social-development.html.
Types of RESPs
Individual Plans: An individual plan names one beneficiary. The beneficiary does not have to be related to the subscriber. The beneficiary can be over 21 when named. An individual plan allows you to invest the money on your own, or with the help of a financial advisor.
Family Plans: A family plan allows one or more beneficiaries to be named in the RESP. The beneficiaries must be under 21 when named and related to the subscriber by blood or by adoption. If one beneficiary decides not to pursue schooling, other beneficiaries can still use the money. The family plan does not require any regular monthly payments, and allows you to invest the money on your own or with the help of a financial advisor.
Pooled (group) Plans or Scholarship Trusts: In a group plan funds are gathered from many families. The RESP administrator pools the contributions and places them in investments that earn a fixed rate of return. The earnings are shared equally among beneficiaries of the plan. Monies from the fund are paid out in the form of scholarships to eligible students while they attend post-secondary education.
When your beneficiary does not pursue post-secondary education
If your child does not pursue post-secondary education you may be able to:
- Use the RESP for another child who does continue education.
- Wait for a period of time; they may decide to continue their education at a later date.
- Transfer the money from the RESP into a Registered Retirement Savings Plan (RRSP) to help you save for retirement.
- Withdraw your personal savings, tax-free.
Ask your RESP provider about the choices you have if your child does not continue onto post-secondary education.
Educational programs include apprenticeships, programs offered by a trade school, College of General and Vocational Education (CEGEP), colleges and universities. Funds can be used towards full or part-time study in a qualifying program. For a list of qualified educational institutions across Canada please refer to http://www.canada.ca.
Steps to opening an RESP
- Get a social insurance number (SIN) for yourself and the RESP beneficiaries. There is no fee to get a social insurance number, however, you do need certain documents to be eligible. For more information on SIN refer to Service Canada.
- If your family net income is $75,769 or less, apply to the Canada Revenue Agency for the Canada Child Tax Benefit. The form can also be accessed through the hospital where your child was born.
- Find an RESP provider that can provide you with opportunities that will meet your needs and objectives. RESP providers include financial institutions and group plan dealers.
- Research the various types of RESPs that are available and decide on the type that you want to open. Decide on a type of investment that will benefit your funds.
- Invest in your RESP. Start early to make the most of compounding interest.
Questions for your RESP provider
- What does it cost to open an RESP?
- What type of fees will I have to pay on an opened RESP?
- Do I have to make regular payments?
- What are the different investment choices and the benefits of each?
- Can the value of my investment go down?
- Can I withdraw money early? Are there any fees associated with withdrawing early?
- Can I transfer the RESP to another person or RESP provider?
- What will happen to the RESP savings if the recipient does not continue their education after high school?
- Is there a limit to the types of qualified educational programs that I can use my RESP for?
- What happens if I decide to close my RESP early?
- What if the recipient decides to go to school part-time?
- Financing your children’s post-secondary education is a big investment. It pays to do your homework and consult as many resources as possible before making your decision.
Education Savings Tip
Scholarships are another option that can be used to finance your child’s education. For information regarding Canadian Scholarship programs refer to the following websites:
Other Sources of Information: