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There are several ways to pay for all this.
1. Student can work at the time to help pay current costs.
2. Student can obtain grant money.
3. Student can obtain a loan and pay it back afterwards, when working.
4. Parent can pay at the time out of income.
5. Parent can pay at the time using assets or borrowing.
6. Parent can save and invest prior to the need for money.
We tend to place a very heavy emphasis on option 6. It's not that we should not save up for our children' s education, but that it should not necessarily be our top planning priority. Given the desire to save and invest for this goal, there are two basic approaches.
1. "In trust" accounts: Set up a non-registered investment account in a parent's name, in trust for a minor. If this account earns interest or dividends the parent pays the income tax. If it earns capital gains the child is taxable, but unless there is a very large income the child will of course pay no tax. This strategy enables you to build a tax free asset which, if handled properly, can be paid out tax free at the parent's discretion for use by or for the benefit of the child for any purpose, no restrictions.
2. Registered education savings plans (RESPs): This type of plan is registered, much like an RRSP, but there is no tax deduction. Instead, there is a 20% federal grant added to the account to a maximum of $400 per beneficiary child per year. When the money is withdrawn the contributions are returned to the contributor and the gains are taxable income for the child. The money can only be withdrawn while the child is attending post-secondary education and there are a number of other limitations on the plan. Click here to read about the RESP multiple-dipping strategy.
We can offer both types of plan with many financial institutions. Contact our office for further information.
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