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!