Education Planning

Financing post-secondary education has grown into a formidable task for many people. Despite its cost, education is still the best investment into the future of children, or often even of adults who want or are forced to switch their lifestyle or career. Higher levels of education tend not only to associate with more satisfying, healthier, and longer lives, but increasingly also with higher lifetime earning potential.

Saving for their children’s education is a high priority for many parents; also, many elderly people feel that helping the education of their grandchildren, nieces, nephews or other youth dear to them is perhaps the nicest legacy they can provide. There are special programs and strategies that can enhance the realization of such intentions.

The essence of the most basic of educational savings programs, Registered Educational Saving Programs (RESPs) - tax-free accumulation, a certain Canada Education Savings Grant (CESG), transfer of tax-payment to students in probably lower tax-brackets - has become widely known in the last few years. At the same time, there are many details (contribution limits, control of the asset, beneficiary designation issues)most people are not familiar with. Many don’t know, e.g., the limitations of so-called pooled education funds (pooled or group RESPs, education trusts, or scholarship trusts), when compared to the more flexible and accountable individual family or non-family RESP portfolios.

Using trusts to ensure funding of future education has its special costs and limitations as well, but there are also valid arguments for it (related to flexibility and tax-advantages mainly), and not just for the wealthy. Even simple income-splitting strategies with children (like directing Canada Child Tax Benefit into their own bank account, and paying them for real services they provide to a family business) can be considered as ways of enhancing education funding.

Life insurance can be a valuable education planning tool as well, in certain situations.

Talking about planning for education to implement career-change later in life, it’s worth knowing about Lifelong Learning Plans (), that is effectively a perhaps not widely known feature of RRSPs. The essence of it is the ability to borrow (withdraw tax-free) up to $10,000 annually (with a $20,000 cap in a four year period) from own RRSP to finance certain (usually full time) education or training programs for self or spouse (common law partner), with the obligation to pay it back according to specific rules, in ten years, or else being taxed on the money, just like when any ordinary RRSP withdrawal happens. There is no age limit, and the program can be used more than once in a lifetime. Starting an RRSP as early as possible is a wise thing, but for many young people, it’s really hard to get going for such a remote goal as retirement seems to be at a young age. Knowing about the opportunity LLPs provide along the long way to retirement may help drive home the importance of early RRSP contributions for some young people.