College and University Funding

As you plan for the birth of your child, you may find yourself wondering what life will be like for them when they get older. While it might seem early to be thinking about college or university, insuring a child has access to a good education will give them the best possible start in life. Consider these quick facts about the benefits of post-secondary education from Statistics Canada:

Canada’s future labour market will have a preference for skilled workers in a global, technologically advanced economy

• College and University graduates are already more likely to have a full-time job, and more likely to keep it during an economic downturn.

• They also tend to earn more than Canadians without post-secondary education

• Post-secondary education has become almost essential. According to the 2001 Canadian census data, 61% of Canadians between 25 and 34 had completed post-secondary

training, up from 49% in 1991.

Tax Sheltered Savings

The cost of education is expensive and tuition fees, books, accommodation and living costs have been increasing faster than the rate of inflation. For example, between 1993–94 and 2003–04 the cost of studying dentistry quadrupled, while medical tuition costs more than tripled and studying law more than doubled.

One of the best ways to save for your child’s future education is through a Registered Education Savings Plan (RESP). While you save, the government will kick in up to $7,200 through the Canada Education Savings Grant (CESG). Taking advantage of this free money can go a long way to finance your child’s education down the road. Putting aside even small amounts each month will translate into substantial savings later on. When your child does attend a post-secondary institute, all your contributions are passed on to them tax-free and taxes are only paid on the investment growth and grants (usually at a much lower tax rate).

The provinces of Alberta and Quebec also offer provincial support for educational funding.

Time is on your Side

By boosting your contributions in the early years, you can take advantage of the power of compounding from more aggressive investment strategies. RESPs are quick to set up and combined contributions of up to $50,000 can be made by parents, grandparents, other relatives and family friends.

A summary of the most recent rules and details about RESPs is available here. There are also some rather specific rules that may come into play. Your advisor should be contacted when you are ready to establish your RESP. There are a number of decisions that need to be made such as the best type of investment(s) to put in the RESP as well as how you would like to make your contributions, which could be a lump sum or ongoing payments.

Additional Savings

The Tax-Free Savings Account (TFSA)

Since January 1, 2009, the Federal government has been providing a new tax efficient savings vehicle for Canadians called the Tax-Free Savings Account (TFSA). The TFSA will allow taxpayers 18 and over to contribute up to $5,500 per year into the account where any income earned will grow tax free and funds may be withdrawn with no tax implications. The range of investments available is essentially the same as provided with an RRSP. The major difference between the TFSA and an RRSP is that there is no deduction allowed for a TFSA.

Although an RESP is preferable due to the government grants provided, if you would like to save funds above and beyond the RESP grant limits, the TFSA should be an attractive option. We can provide you with more information about the TFSA as well as assist you in establishing an account.

Please contact us to find out more!

Barbara Reid's Wealth Management Team

Your personal Wealth Advisor in Hamilton, Ontario