This week’s Around The World steers clear of macro-issues like the global economy, President Trump or the Korean peninsula, and instead looks at something more near and dear to parents –funding their children’s postsecondary education. Registered Education Savings Plans or RESPs are the preferred vehicle of choice, because of the 20% Federal Grant (CES grants) up to $500 per child per year, and the tax deferred growth enjoyed in the plan. Used correctly, the RESP represents the most cost and tax effective way to save for College or University.
The one caveat to this is the situation where parents find their child has decided not to continue their studies after high school. What then? As this article from the Globe & Mail summarizes, parents face the prospect of giving back the CES grants and paying tax on the growth plus an additional 20% super-tax (our government is good at really sticking it to us). Ouch!
Fear not, for there are solutions including rolling the growth into either parents RRSPs, or deferring withdrawals to see if whether there is a change of heart. Adult children have up to age 35 to collapse their RESPs before the tax man cometh. Lots of time to realize that an education is the ultimate investment that will yield dividends over a lifetime.