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Saving for your children’s educationSaving for your children’s education
Welcome
We’ll discuss ...We’ll discuss ...
• why saving for education is important• various investment options• Registered Education Savings Plan = RESP • Canada Education Savings Grant = CESG• RESP and CESG tips• Traditional costly options• Greatest secret never told !!!
A. Tuition alone can range between $2500 and $8000 a year.
Fifteen to twenty years from now, the estimated cost of four years at school away from home may
be between $75,000 and $100,000
Q. What is the estimated yearly cost of post-secondary education?
Student living at homeStudent living at home
Years until child attends a post-secondary
institution
Estimated cost of four-year college or
university program
Monthly savings needed
4 $21,000 $400
6 $23,100 $275
8 $25,400 $215
10 $28,000 $180
12 $30,900 $160
14 $34,100 $140
Source – Human Resources and Skills Development Canada (HRSDC) 2007
Students living away from homeStudents living away from home
Years until child attends a post-secondary
institution
Estimated cost of four-year college or
university program
Monthly savings needed
4 $52,500 $990
6 $57,800 $690
8 $63,700 $540
10 $70,300 $450
12 $77,500 $390
14 $85,300 $350
Source – Human Resources and Skills Development Canada (HRSDC) 2007
A. Tuition has risen 4 times faster than inflation in the past 15 years! In fact, tuition would have to remain level until 2042 to compare with 1990 levels!
Q. What has risen faster, tuition or inflation?
Source – Canadian Federation of Students, 2004
Don’t delay savingDon’t delay saving
$48,865
$31,254
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$100 / 18 yrs $200 / 9 yrs
Based on monthly contributions, 8% interest rate
Investment optionsInvestment options
1. Deferred Annuities
2. Trusts
3. Capital Gains
4. Registered Education Savings Plans
5. Universal Life Insurance
Deferred annuitiesDeferred annuities
• good way for a parent to save money without giving up control of the money
• no tax advantages – owner pays the tax• if child doesn’t go to post-secondary education,
parent can keep the money or provide it as a gift to the child
TrustsTrusts
• used to be more popular prior to the changes made by the Canada Revenue Agency with the way tax law is applied
• now, all income is attributable to the donor and second generation income and capital gains are attributable to the minor beneficiary
• when the child reaches 18, they can demand payment
Capital gainsCapital gains
• usually through common shares or mutual funds• experts recommend that a lawyer set up a formal
trust document covering:– terms and conditions– age the child will access the money– who gets the money if the child doesn’t survive to that
age
RESPsRESPs
• education investment vehicle to save money for a child’s post-secondary education
• contributions are not tax deductible• investment growth is tax sheltered• income withdrawn for education purposes is taxed in
the child’s hands
RESP = Registered Educations Savings Plan
What can the RESP be used for?What can the RESP be used for?
Once the child is registered in a qualifying post-secondary educational institution and receives
proper proof of enrollment, the RESP can be used to fund items such as:
• room and board• travel expenses
related to attending the program
• tuition costs• books• lab fees• equipment
Did you know…Did you know…
Unlike past years, today virtually allfull-time post-secondary education is eligible
for assistance through RESPs.
RESP plan typesRESP plan types
• names one beneficiary• no relationship between
subscriber and beneficiary required
• applicant must be related to beneficiary by blood or adoption
• grant money is transferable to other beneficiaries within the same plan up to $7,200 per beneficiary
• can name more than one beneficiary
Individual Plan Family Plan
If you have two beneficiariesthat differ in age by more than 6 years, it may make sense to set up a second
RESP rather than a family plan.
All RESP must mature and be terminated 25 years after the end of the year in which the
contract was entered into.
TipTip
RESP contributionsRESP contributions
if transfer(s) have been made to the
plan, 21 years after the year of the
earliest effective date that applies
Contributions can be made up to the earliest of:
date beneficiary turns 21
21 years after theplan was entered
applies to Family plans only
Family or Single plans
Family or Single plans
Family plan versus Single plan
RESP contributions continued…RESP contributions continued…
• plan must be terminated 25 years after the end
of the year in which the contract was entered into
• maximum lifetime contribution = 50,000/beneficiary
What is a CESG?What is a CESG?
• payable on first $2,500/yr of RESP contributions per beneficiary
• maximum CESG = $500/yr (20% X $2,500) per beneficiary
• CESG is paid monthly, until beneficiary reaches age 18
• maximum grant per beneficiary = $7,200
CESG = Canada Education Savings Grant
CESG tipCESG tip
Unused grant contribution roomcan be carried forward and used when
additional contributions are made in future years, subject to a $800 maximum
annual grant.
$55,000Interest
$55,000Interest
$45,000contributions
$7,200 grant
Grant difference = $16,725
$45,000contributions
$9,525 interest
Total = $116,725
Total = $100,000
Assumptions:•8% interest•$208.33 monthly deposit•18 year investment Example 1:
with CESGExample 2:
without CESG
What a difference the CESG makes!What a difference the CESG makes!
CESG restrictionsCESG restrictionsCESG is unavailable in the following situations:
1. the beneficiary is a non-resident
2. the RESP is started when the beneficiary is 18years or older
Cont’
CESG restrictions continued…CESG restrictions continued…
3. the beneficiary is age 16 or 17, unless:
• $2,000 of RESP contributions were made and not withdrawn before the end of the year in which the beneficiary turned 15 years of age
OR• a minimum of $100 in annual RESP contributions
were made and not withdrawn in any four years before the year in which the beneficiary turned 15 years of age
Let the CESG work for youLet the CESG work for you
• 20% CESG payment on contributions• investment growth earned on CESG• tax-deferral on investment growth • no financial surprises when tuition bills appear
Q. What happens if your child doesn’t go to post-secondary education?
A. You have the option to:
1. change beneficiary
2. withdraw income
3. donate to an educational institution
4. transfer RESP income into contributor’sRRSP
Transferring RESP money into personal RRSPTransferring RESP money into personal RRSP
If you choose to transfer RESP funds to your personal RRSP:
1. you can transfer up to $50,000 to your personal RRSP
(assuming you have the contribution room)2. the CESG must be repaid to the government3. interest on the CESG is yours to keep4. a T4A and a contribution receipt will be
issued to the subscriber/annuitant
Universal Life Insurance – another alternativeUniversal Life Insurance – another alternative
• life insurance flexible enough to meet your child’s lifetime needs
• access to a reserve or fund of money that grows tax-sheltered within the policy
Universal life may be a good option to supplement your education savings
when you’ve maximized your RESP grant.
Putting it all togetherPutting it all together
• take advantage of the government grant
• add flexibility with a Universal Life policy
Traditional Expensive OptionsTraditional Expensive Options
• Borrow the money• Withdraw money from retirement savings• Mortgage their home• Pay-as-you-go• Let their child work part time• OSAP loan.
SummarySummary
• preparing for increasing education fees• understanding various investment options• Registered Education Savings Plans (RESP)• Canada Education Savings Grants (CESG)• Education Assistance Program (EAP) ***• adding flexibility with a Universal Life policy
Today we’ve looked at the importance of:
Next StepsNext Steps
• putting your plan into action • questions• how I can help• Special Offer• Lacole Education Fund
Thank you for coming!