An Important Decision
There are a few different ways to save for your child's education.
The RESP/CESG (Registered Education Savings Plan / Canada Education Savings Grant) program is a pretty common vehicle used by many Canadians. You can also save using an in-trust account. While this option doesn't offer grants, it has other benefits that may present more options down the road for your family, depending on your unique situation.
For example, if you've saved using a 'family' RESP, and none of your children decide to pursue secondary education, the contributions you made were with 'after-tax dollars' (no tax-deductions received for making contributions) therefore that money can be returned to you (the contributor) without any tax implications. Any grants the plan received (CESGs) must be returned to the government. Provided the plan has been in place for at least 10 years and no beneficiary has attended an eligible educational institution by age 21, all investment growth inside the plan, that has been tax-sheltered to this point, can be transferred back to you (the contributor). However, this money must be taken 'into income' by you (thus increasing your taxable income for the year), plus you would be assessed an additional 20% tax on top of that. As another option, if you (or your spouse) has available contribution room, you could transfer up to $50,000 into your RRSP in order to maintain the tax-sheltered status of the investment growth. Then, if you wish to withdraw any of this money from your RRSP, it will be subject to withdrawal tax (just as any money withdrawn from your RRSP would be).
Unlike RESPs, in-trust accounts don't have to be used for education. If your child decides to not pursue further education, you personally won't have to pay tax on any investment growth. The withdrawals are taxed in the hands of your child (who likely has little or no income when they turn 18 and start withdrawing the money) therefore resulting in little or no tax payable. And with an in-trust account, you can access the funds immediately, without having to roll them into your RRSP which would mean withdrawal taxation. That said, it still makes sense to choose investments that result in capital gains which receive more favourable tax treatment than dividends, interest, or other income. Keep in mind that expertise is required to create trusts that function properly.
There are many aspects to review and consider when choosing a vehicle to save for your child's education – we're here to help you understand all of your options so that you can make the best decisions for your family.
Here are three articles that describe some pros and cons of various savings vehicles:
Eight ways to make the most of your child's RESP
What investment vehicle should I use to save for my child's education? THE DETAILS
What investment vehicle should I use to save for my child's education? THE NUMBERS
