Planning for Higher Education Costs in Canada

Canadian tuition rates, albeit still rather low compared to many countries, are on the rise. It is going to be absolutely necessary for Canadians to start putting away a little bit each year for their children’s future tuition costs. Heritage Education Funds has Registered Education Payment Plan (RESP) accounts to help families plan for managing these costs. The maximum annual contribution is currently $4,000, but lifetime contributions are capped at $50,000 per beneficiary. If you start a RESP account for your child when they are 2, you could put the maximum contribution in until the child is roughly 14 years old, and then you could put $2000 in the following year at which point you will have reached the limit on what you can invest in a RESP.

Currently if your child went to school for 4 years in the most expensive province in Canada, they would still have quite a bit left in their RESP to finance additional education. The cap on contributions is hardly prohibitive, so the important thing to do is to start making contributions when your child is young. For every $2500 each family puts in a RESP, the Canadian government will contribute 20% of that total into each RESP. They will do this every year until the beneficiary turns 17 years of age. At that point, this contribution stops, so the sooner you start a RESP for your child, the more they are going to benefit from these governmental contributions. It also encourages families to make at least a $2500 donation into a RESP so as to maximize the amount of money the government is providing to finance your child’s education.

Funds can remain in a RESP for 36 years from the date of establishment. If after high school your child does not immediately go on to higher education, they have time to decide before they would have to make a choice on what to do with their RESP. If, however, you are sure your beneficiary is not going to use those funds, you can transfer funds from one RESP to another, so if you have a younger child with a RESP, you can transfer the RESP from the beneficiary who is not going to school to another child. If you have a family plan, contributions must be tracked per child annually to be sure contribution limits are adhered to. You can make multiple contributions of varying amounts throughout the year, but they must be tracked so as to avoid an over-contribution. For more information on the government educational programs you can visit their YouTube channel at: https://www.youtube.com/user/CanLearn. RESPs are a great way to plan for paying tuitions, especially when it seems there are no tuition cost-reductions in sight.