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There are several alternatives available to save for post-secondary education.  My role is to help you choose the right alternatives.

Education Planning

Everyone wants their children, grandchildren, nieces, or nephews to have the opportunity to go to university or college.  However, escalating tuition fees and other education costs are making it increasingly difficult to keep that vision alive.  One of the greatest gifts you can provide to a child is a savings plan to address their education needs.

There are several alternatives available to save for education.  My role is to help you choose the right plan or combination of plans that are best for your circumstance.

Let’s look at some of the options.

1.  Regular savings. The most obvious way to save for a child's education is just through regular savings. The advantage to this is that there are no restrictions in terms of minimums, maximums, investment choices, etc. Any investments will be held in the name of the adult/parent and the adult/parent will pay taxes.

2.  Informal Trusts. The informal trust account is similar to a regular savings account except that it is owned 'in trust' by the adult/parent on behalf of the child.  It is considered informal simply because there are no formal trust documents signed.  The benefit of an 'in trust' account is that some of the tax may be taxable to the child depending on the type of income the investments produce.  This is beneficial because the child has no income and therefore pays no tax.

These accounts are similar to savings accounts in that the money saved can be used for any purpose and not just for education.  For example, the child could use this money for a myriad of options — to buy a car, travel, down payment on a house, or maybe to start a business, etc.

3.  Registered Education Savings Plans (RESPs) have become one of the most popular vehicles to save for education.  RESPs differ from the other options in that they must be used for the purpose of education.  In fact there is a list of qualified educational institutions.

The main reason for the popularity of RESPs is that the federal government contributes the Canada Education Savings Grant (CESG) and Canada Learning Bond (for low-income families). 

4.  Pooled RESPs are sometimes known as scholarship trusts or education trusts.  Contributing to a pooled plan means that you will purchase units into a pool of investors.  Typically the pooled programs will only invest in fixed income securities.  If the adult/parent were to buy units of these pooled RESPs, he/she would have no control over the investments.

You have to really be careful about the details of these contracts especially under what conditions fees will be charged. With some plans, you can expect to pay enrolment fees, administration and management fees, sales incentive fees, trustee fees, custodian fees and transaction costs.

5.  Formal Trusts.  A formal trust differs from an informal trust in that a lawyer must draw up forms for signature. The trust specifies how monies can be invested, who the beneficiaries of the trust are and how the money can be used.  The taxation of investments is similar to the informal trust.  The biggest advantage is the ability to dictate when and how the money can be used. However, formal trusts can sometimes be costly to set up compared to the other options.

6.  RRSPs.  The Lifelong Learning Plan allows an individual to withdraw up to $10,000 per year up to a maximum of $20,000 from the RRSP over a four-year period.  The withdrawal must be paid back over a 10-year period otherwise it will be added to your income and then taxed.  This is an option for adults wishing to upgrade their education.

7.  Life Insurance has always been a traditional tool to invest for a child's education.  Given all of the other options, the popularity of using life insurance for education funds has diminished dramatically.

As you see, there are many more education savings options available than most people realize.  Wealth Management is about helping you choose the right option.