Saving for Education

Will and Rosa: Our little boy just celebrated his first birthday. It's amazing how fast he's growing! We want to give him every opportunity in life, including the best education we can afford. What's the best way to save for his education?

Will and Rosa know that the sooner they start saving for their son's education, the better. They want to learn more about Registered Education Savings Plans (RESPs), so they can decide whether that's a good option for them. They've also heard something about a government program that can help them, but they're not clear on the details.

Their CIBC advisor explains that an RESP will give them the advantage of saving in a tax-deferred plan. He shows Will and Rosa how quickly their savings can add up, based on different contribution levels.

Contributions to an RESP are eligible for the Canada Education Savings Grant (CESG); the government will contribute an additional 20% on the first $2,500 of annual RESP contributions. This means the grant can be as much as $500 each year per beneficiary and over the years could amount to a total of $7,200.

If Will and Rosa have surplus cash at any time - such as a gift from their parents or a tax refund - they can earmark that for the RESP as well. The lifetime contribution limit is $50,000 per child.

"When the money is withdrawn to pay for your son's schooling," explains their advisor,"only the income and grant funds are taxable and these amounts will be taxed in your son's hands. In many cases, there's little or no tax payable."

Their advisor helps Will and Rosa set up automatic RESP contributions through a CIBC Regular Investment Plan, and an investment portfolio that will meet their needs. Since they are planning to have another child, Will and Rosa follow their advisor's suggestion to open a Family RESP rather than an individual RESP. That way, if one child decides not to attend university or college, they have the flexibility to use the plan for the other child.

With their strategy in place and manageable contributions set up for their RESP, Will and Rosa feel confident about their son's future.