It’s back to school for the kids and whether they are going to school for the first time or now entering high school, we as parents all want our children to be happy and successful.  A post-secondary education is one of the most important gifts that we can give our children, but it is anything but free. A college or university education is a big ticket item that is increasingly beyond the reach of many families.
 
Education inflation
Just how expensive is it to put a child through college or university? (Make sure you’re sitting down.) Human Resources and Skills Development Canada (HRSDC) reports that a four-year degree – with living expenses factored in – now tops $61,800. In 18 years, HRSDC expects the same program will cost $87,600.
 
Paying for post-secondary education is a sacrifice. But families know that missing out on the opportunity could be an even bigger sacrifice for a child. On a 2006 Ipsos Reid survey fewer than half (48%) responded that they plan to invest in a vehicle such as an RESP. This is disappointing, as an RESP can be one of the easiest ways to save for your child’s future education.
 
Two out of three new jobs require more than a high school diploma, according to Statistics Canada. University graduates earn on average twice as much as workers with only a high school diploma, and they’re more likely to hold on to a job when times are tough.
 
What is an RESP?
The federal government recognizes that families need help in giving their children opportunities to acquire skills through education. That’s why it has created a special savings plan with several attractive features.
 
The Registered Education Savings Plan is a special type of savings account. Contributions to an RESP are not tax deductible; however, capital gains and income earned on contributions grow tax-deferred until withdrawn. You can set up either an individual plan or a family plan. Anyone can set up a plan, whether it’s the parents, grandparents, uncle, aunt etc. and that person is known as the subscriber. The child needs a Social Insurance number (SIN) and is the beneficiary. Under a family plan, one or more children can be named as beneficiaries but must be related to the subscriber (children, adopted children, grandchildren). Under an individual plan there is only one beneficiary and he or she doesn’t have to be related to the subscriber.
 
The federal government sweetens the deal with bonus payments from the Canada Education Savings Grant program (CESG). Grants are worth 20% of the first $2,500 in annual RESP contributions, up to a lifetime limit of $7,200 per child.   Contributions can be made up till the year the child turns 18. If starting late the government does let you catch up past contribution room. The restriction is that you can only go back one year at a time.   For example, an RESP is set up for Tommy when he is ten years old. The subscriber can make contributions of $5,000 per year (the current year’s contribution of $2,500 and one previous year of $2,500) for the next seven years, totalling $35,000 and receive CESG of $7,000.
 
The provincial government has also stepped in with the Alberta Centennial Education Savings Plan Grant which provides for an initial $500 grant to go towards an RESP for every child born after January 1, 2005. They have further enhanced this program to offer a $100 grant for every child who has turned 8, 11 or 14 since January 1, 2005.
 
Next week we will continue on this topic talking about how you can invest these funds, how withdrawals work and what happens if the child decides against post-secondary education.
 
 
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September 5, 2008