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Saving for an Education

Tuition may be increasing, but education is still the best investment we can make for our children or grandchildren.  Today more than ever, it pays to plan ahead for a child’s education – and Registered Education Savings Plans (RESPs) are an excellent tool to help you do it.

Establishing an RESP helps you save along the way so that you aren’t faced with huge expenses all at once.  Parents, grandparents and certain other family members or friends can contribute up to $4,000 per year to a maximum of $42,000.  Plus, they can save taxes at the same time.

Even though the annual contributions to the plan are not tax-deductible, the money grows tax free until it is withdrawn.  The student then pays the tax owing on the income when it is withdrawn – and usually at a much lower rate.

You can also benefit from the Canada Education Savings Grant, a federal government program whereby the government contributes an additional 20 per cent on the first $2,000 of annual RESP contributions.  This guarantees a rate of return of at least 20 per cent on an annual basis – which means you can save even more.

But do your homework,  if you’re considering setting up an RESP, seek advice first.  Different plans have different conditions.  There are certain limitations relating to the Education Savings Grant.  You want to make sure that the terms of the plan you choose meet your intentions and requirements, and provide the best education fund for your children.

Jeff Nightingale is the Senior Tax Partner at Lipton LLP, Chartered Accountants.  Jeff has written a number of publications and speaks to a variety of professional and business groups, including the Canadian Tax Foundation, the Institute of Chartered Accountants of Ontario and The Law Scociety of Upper Canada.  He has also completed the CICA In-Depth Tax Course as well as other advanced taxation courses and is a member of the Canadian Tax Foundation and the Society of Trust and Estate Practitioners.

Learn More about Jeff Nightingale

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