Education Planning

• RESP
• CESG

Financial Planning

Saving for a Child's Education
Higher education can provide important advantages. With the cost of post-secondary education in Canada steadily climbing, many parents are looking for ways to fund their children's future education needs. At BMO Nesbitt Burns, our experience has shown that a dedicated savings strategy, that includes a Registered Education Savings Plan (RESP), has proven to offer the greatest assurance that the money will be there when it's needed.

Using our sophisticated planning software, our Investment Advisors can create a customized education analysis that will help you estimate the future cost of your child's education, show you how much you will need to save and which combination of investment vehicles can help you to achieve your goals. Your resulting strategy will depend on a number of factors, including the number of children you have and their ages, the number of years of post-secondary education you anticipate for each, your savings status and a possible rate of return for the level of risk you can comfortably accept.

Registered Education Saving Plan (RESP)
A Registered Education Savings Plan is essentially a tax deferred savings plan that you open on behalf of a future post-secondary student. While RESP contributions are not tax deductible, the income earned on contributions compounds on a tax-deferred basis. There is no annual contributions limit, but RESP contributions may be made for up to 31 years — to a lifetime maximum of $50,000 per beneficiary. (Plus, the federal government will pay you an incentive on a portion of your RESP contributions — see Canada Education Savings Grant below.) An RESP terminates when all the funds have been withdrawn or 35 years after the plan was opened, whichever comes first.

You may withdraw your RESP contributions at any time, with no tax consequences — only the accumulated income and any CESG in the plan is taxable. When money is eventually withdrawn from an RESP to pay for education-related costs, the income and grant is taxed in the hands of the beneficiary (the student), not the contributor. If the student withdraws the money over a few years, the income should attract little or no tax.

Subject to certain conditions, if the beneficiary does not pursue post-secondary studies, up to $50,000 of RESP income may be transferred to the contributor's RRSP, as long as there is available contribution room. If there is more RESP income than RRSP contribution room, the excess income may be added to the taxable income of the contributor and, in addition to the tax that would normally be paid, a 20 per cent penalty tax would be charged.

For more information, contact an Investment Advisor at a BMO Nesbitt Burns branch near you.

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Note: The comments included in the publication are not intended to be a definitive analysis of tax law: The comments contained herein are general in nature and professional advice regarding an individual's particular tax position should be attained in respect of any person's specific circumstances.