Do you wish to provide financial support for your grandchildren’s future education?
Many of us would like to help with private school or post-secondary school expenses, as we recognize the importance of a good education – and the high costs often associated with it. Here are a couple of options to consider if you are a grandparent.
Make an outright gift
You can take a “wait and see” approach and help pay for your grandchildren’s expenses as they arise. This lets you assess each grandchild’s situation while keeping the assets in your name. If you pay tuition fees directly to an educational institution, there will be no concerns about income attribution. If you plan to give money directly to a grandchild under 18 years of age, when that money subsequently earns interest or other investment income, the tax liability may be attributed back to you. A financial gift to grandchildren aged 18 and over is not attributed back to you. Instead, it is taxed at the child’s rate of taxation (presumably lower than yours). If the child uses the money to pay tuition, they may be able to transfer unused tuition and education tax credits to a parent or you. The “outright gift” approach makes sense for private school tuition fees since RESPs can only be used to fund post-secondary education.
Contribute to a Registered Education Savings Plan
Once your grandchildren are born, they qualify for a Social Insurance Number, allowing a Registered Education Savings Plan (RESP) to be opened on their behalf. Although contributions to an RESP are not tax-deductible, there is a tax-deferral opportunity as the contributions accumulate tax-free within the plan. Upon withdrawal, the income and government grant portions (refer to the bullet point on CESGs) will be taxable in the hands of the beneficiary (i.e., the student). At the same time, the principal contributions remain tax-free, provided that your grandchild is enrolled full-time or part-time in a qualifying educational program at a qualifying post-secondary educational institution. Your grandchild will likely be in a lower tax bracket than you at the time of withdrawal and will be able to offset some of the tax liability with tuition and education tax credits, lowering the overall tax burden on these funds.
- There are individual plans and family plans. In an individual plan, the subscriber (i.e., the one opening the RESP) can be anyone – a relative or otherwise – but there can only be one beneficiary. In a family plan, the subscriber must be a parent or grandparent. You can have multiple beneficiaries if they are related to the subscriber by blood or adoption.
The total lifetime maximum RESP contribution is $50,000 per plan. Contributions to an individual plan may be made for up to 31 years after the plan is established. For example, if an individual plan was opened in 2000, the last contribution date is December 31, 2031. Contributions to a family plan may only be made until the date the beneficiary turns 31 years of age. The plan must be closed by December 31 of the 35th year after being opened. A penalty of 1% per month is imposed on excess contributions for each month the funds remain in the plan.- Your capital contributions may be withdrawn anytime; however, you cannot withdraw RESP income without tax consequences. For a beneficiary who qualifies for the disability tax credit, the termination date of the RESP has been extended from 35 to 45 years.
- Under the Canada Education Savings Grant (CESG) program, the federal government will pay a grant of 20% on the first $2,500 of your annual contributions. The maximum annual grant of $500 (up to $1,000 if there is sufficient unused accumulated grant room) is payable for each year until the end of the calendar year in which the beneficiary turns 17, to a lifetime maximum of $7,200 per beneficiary.
Contact the Dri Financial Group to discuss educational savings strategies in more detail.
source https://richarddri.ca/support-your-grandchilds-education/
Dri Financial Group 