During the 2018/2019 school year, the average tuition for Canadian universities was $6,838.1 If you’re a parent with a child off to university soon, this gives you an idea how much you’ll need. But what if your child decides to pursue dentistry? During the same year, the average tuition for dentistry programs in Canada was $23,474.1 And if you factor in campus costs, most universities charge between $10,000 and $15,000 for a double room with a full meal plan.
It’s important to make sure you’re contributing enough to your Registered Education Savings Plan (RESP) and any other investment vehicles you may be using. Otherwise, you might need to dip into your retirement savings to cover unexpected costs.
RESP – a solid foundation
RESPs remain the foundation of education funding. You can contribute up to $50,000 for each child, and your contributions grow tax-deferred. You also receive the Canada Education Savings Grant (CESG), in which the government matches each contribution by 20%, up to $500 annually, to a maximum total of $7,200 for each child. It is paid directly into the RESP.
If you start contributing early and take full advantage of the annual grant, your RESP alone may meet your education savings goal. But some parents choose to supplement an RESP with other investment vehicles to accumulate more education savings, or because they want a source of savings that can easily be used to meet other financial goals if not required to fund education.
Investing with an in-trust account
An in-trust account, sometimes called an informal trust, is a non-registered investment account you can establish on behalf of a minor. If you want to save for two children, you’ll need two such accounts. They’re easy to set up and can provide tax advantages. When you use an in-trust account for equity investing, capital gains are taxable to your child, which typically means paying little or no tax when withdrawals are made during university years. Interest and dividend income earned on original capital are taxable to you, but income earned on income is taxable to your child. You can invest as much as you wish annually and in total. These accounts have flexibility since the funds don’t need to be used for education costs. Upon reaching the age of majority, the child may request the assets in the account or may choose to leave some or all of the assets in trust until a later date.
Using Tax-Free Savings Accounts (TFSAs)
Tax-free growth and tax-free withdrawals make a TFSA an ideal vehicle for education savings, and contributions can be considerable if you use both your and your spouse’s TFSAs. If you withdraw from your TFSA, you can re-contribute withdrawn amounts the following calendar year.
Many decisions are involved
Whether to supplement an RESP with other investments is only one of several decisions to make. If you have more than one child, you might also want to know if individual RESPs or a family plan suits you best. As teen years approach, perhaps you’ll need to make RESP investments more conservative. And when it’s time to withdraw RESP funds for university costs, you’ll want to know about the strategies involved in accessing taxable funds versus non-taxable funds.
Contact your advisor to discuss any financial decisions that arise as you plan for your children’s education.
1 Table 37-10-0003-01, Canadian undergraduate tuition fees by field of study, Statistics Canada, 2019