Pencils, notebooks and erasers is the focus of back-to-school for the little ones, which is just around the corner.
When it comes to post-secondary education, however, family discussions quickly turn to money — and do we have enough to send our child to university or college?
A mix of strategies, however, can help students and parents balance saving for education with the current high cost of living.
According to Statistics Canada, undergraduate tuition fees averaged $7,076 for the 2023-2024 academic year, a nine per cent hike from the 2019-2020 academic year.
The best tool for starting savings early and avoiding debt later is the Registered Education Savings Plan (RESP).
Canadians can hold a range of investments in their RESPs, such as guaranteed investment certificates, exchange-traded funds, stocks and mutual funds, where any growth within the plan is tax deferred.
Eligible adults can open this type of savings account for their child, someone else’s child, themselves, or another eligible adult through most financial institutions, like a bank or credit union.
Jason Heath, managing director at Objective Financial Partners in Toronto, says the free money you get through the RESP is “too lucrative to forgo.” Wendy Brookhouse, certified financial planner and owner of Black Star Wealth in Halifax, agrees.
The federal government matches 20 per cent of your contributions, up to $500 per beneficiary per year, through the Canada Education Savings Grant.
Additional benefits exist for lower-income families, such as the Canada Learning Bond (CLB), in which the federal government contributes up to a lifetime maximum of $2,000 without requiring personal contributions.
Heath adds that some provinces also offer additional grants and bonds if your family income falls under a certain threshold.
Along with an individual RESP, there are also family plans for use by more than one beneficiary.
Group plans are sold through scholarship plan dealers, but Brookhouse and Heath urge caution around these, which can come with high upfront fees and certain risks.
Because a Group RESP pools all plan members’ contributions, rate comparison site Ratehub.ca warns that you might be required to stick to a specific contribution schedule and often are limited to fixed-income products, which may not align with your investment strategy for education savings.
Brookhouse says you may use a riskier investment strategy when your child is young and temper it later so that it’s “a little more secure” as your child nears the age of enrolling in a post-secondary institution.
Canadians can contribute up to a lifetime maximum of $50,000 to their RESP for each beneficiary.
After that, Brookhouse and Heath say you have several options. One option is a TFSA, which allows you to contribute and withdraw funds tax-free. (The maximum TFSA dollar limit is $7,000 for 2024.) In contrast, your beneficiary, typically your child, must pay tax on funds withdrawn from an RESP. And contributions to a TFSA or RESP are not tax-deductible.
How much parents need to save up in RESP is circumstantial.
“I often talk to clients about balancing helping their kids and spoiling them to the point where they may not appreciate the value of a dollar or the value of their education,” says Heath.
By Srivindhya Kolluru | Contributing Columnist Aug. 12, 2024