Financial Planning Q 'n A

I have two young children, are there any options available for saving towards their post secondary education?

There are several strategies to consider when saving for children’s education. First might be maximizing personal savings and debt reduction leaving more potential personal income available in the future to pay for your children’s education. Second, you may set up a formal or informal trust to save money. Third you may wish to set up a Registered Educational Savings Plan (RESP). Finally, you may wish to use a life insurance product. Each option has its own advantages and disadvantages. Not formally saving for your children’s education is easy and flexible, however without knowing the future and having a specific fund set aside, your children may be without any available funding for their education. An informal trust could be as simple as setting up a bank account or brokerage account “in trust” for your children. This is relatively inexpensive, flexible and depending on the investments chosen, potentially advantageous from an income tax point of view. Your ability to control the account once a child reaches the age of majority may be restricted. Formal trusts are legal arrangements with specific control, tax and usage restrictions. These trusts are generally set up when there is significant wealth involved. They are more complex and costly to administer. They do allow flexibility in investments and control by the parent.

The final option used by many Canadians is the RESP. There are two variations, being pooled plans or self directed. There are various restrictions, requirements and potential pitfalls with these plans which must be reviewed prior to enrolling. The main advantages of these plans however is the government grant for a percentage of your contributions and the tax deferred earnings within the plan.