Planning your child’s education: The best ways to save for your child’s future.

While the earlier you start saving for your child’s education, the better – it’s never too late to start. Even setting aside a small amount each year can turn into a substantial savings if you plan right. Luckily, there are several government programs that make saving for your child’s education a bit easier.

Registered Education Saving Plan (RESP)

An RESP is a special savings account (provided by banks, credit unions, certified financial planners and group plan dealers) which lets parents save for their children’s post-secondary education including:

• apprenticeship programs
• CEGEPs
• colleges
• trade schools or
• universities

You can't claim a deduction for your contributions to an RESP. However, the contributions plus any government grants that are paid into it, grow tax-free provided they stay in the plan. While there is no annual limit to how much you can contribute to an RESP, there is a lifetime contribution limit of $50,000 per beneficiary.

When your child (also known as the beneficiary) goes to college or university, they can start using the money from the plan in the form of Educational Assistance Payments (EAPs). The portion of the payments attributable to income earned in the plan will be taxed when your child withdraws it, but don’t worry! Since students have little or no income, they can offset any taxes by claiming any personal amounts they're entitled to (for example, the basic personal amount and the tuition amount).

Note: If your child decides they don’t want to pursue a higher education, you and them still have some options which include:

• Keeping the plan open: Just in case they change their mind down the line, you can keep their RESP open for up to 36 years.
• Transfer the amount to an RESP for another beneficiary
• Close the account: If you choose to close an RESP, the money you put in will be returned tax-free. However, you would be subject to tax on any money earned in the plan (called the “accumulated income”), plus an additional 20 per cent fee and you’ll have to return any government grant amounts the RESP received. If you want to avoid the tax on the accumulated income (and the additional 20% fee), you can transfer the funds as a contribution to an RRSP. But make sure you have enough room in your RRSP deduction limit first.

What government programs can help me save for my child’s education?

The government has some additional programs which can benefit your contributions to your child’s RESP. The Canada Education Savings Grant (CESG) and Canada Learning Bond are government programs that work alongside your RESP to help cover costs of education.

What is the Canada Education Saving Grant (CESG)?

As an additional encouragement to save for your child’s future, the federal government provides a grant of up to $500 on an annual contribution of $2,500 that you make to your child’s RESP. Depending on your net family income, you might be eligible to receive an additional CESG (A-CESG) amount that adds 10% or 20% to the first $500 contributed to the RESP each year.

It's worth remembering that this grant is only available to children until the end of the year in which they turn 17.

For more details on the CESG, check out the CRA website for everything from eligibility to applying.

What is the Canada Learning Bond (CLB)?

The Canada Learning Bond (CLB) is a government program that deposits up to $2,000 into an RESP of an eligible child, even if you don’t add any money to the plan. The CLB is available to children:

• born on or after January 1, 2004
• who are residents of Canada
• who have a valid Social Insurance Number (SIN) and
• who are from low-income families

The CLB amount includes $500 for the first year of eligibility and $100 for each year the child remains eligible, until the year they turn 15. Additionally, the government will deposit $25 in an RESP to help cover the costs of opening the plan.

Provincial education savings incentives

British Columbia and Québec offer additional education savings incentives that add money to an RESP on top of any money you might receive from the CESG, A-CESG, or CLB – helping you save money even faster!

• The British Columbia government contributes $1,200 to children born 2006 or later via the B.C. Training and Education Savings Grant (BCTESG). You have until the day before your child’s 9th birthday to apply for this grant.
• The Québec Education Savings Incentive (QESI) is available to children under 18 and is equal to 10% on the contributions made to an RESP, up to a maximum of $250 per child per year. The trustee of the RESP must apply for this grant with Revenu Québec within 3 years of the contributions made.

Having a child changes a lot of things, and it can seem overwhelming at some points. But that’s why we’re here for you. Our Tax Experts can help you adjust and plan for your new addition and take stress off your shoulders. Find the nearest office to you and chat with one of our Tax Experts today!