You want your children to have the best opportunities in life, and you recognize that higher education will provide them with many advantages. You also know that the costs of post-secondary education are climbing steadily each year, and it's not always easy to put the necessary funds aside.
Take advantage of a Registered Education Savings Plan (RESP), a tax-deferral savings plan you can open for a future post-secondary student. Despite the complexity of RESPs, they are probably the best way to save for your children's education, because:
- Although contributions to a RESP are not tax-deductible, the income accumulates on a tax-free basis year after year.
- The federal government kicks in a Canada Education Savings Grant of 20% of what you contribute, up to a maximum of $500 per child per year to a lifetime maximum of $7,200 per child.
- When your child uses the funds, the income portion is considered the child's income and is taxed at his or her low tax rate.
There is no an annual contribution limit, but there is a maximum lifetime contribution per child of $50,000. If you miss a year or two - or can't contribute as much as you would like - you can always catch up later.
There are two types of plans - family and single. Parents or grandparents can open family plans, and they may contain several sibling beneficiaries. If older children don't attend post-secondary school, in some cases the funds can be transferred to other beneficiaries. Single plans can be opened by anyone, and the plan holder doesn't have to be a close relative of the child.
Planning your RESP strategy and investments can be quite complicated. Your strategy will depend on several factors. They include the number of children, their ages, the years of post-secondary education you expect for each, your savings status, and your investment risk tolerance.
If you would like to more information on RESPs, or would like to review your options to set up a plan for your children or grandchildren, contact our financial and estate planning division.