In Canada the best way is typically to open an RESP (registered education savings plan). By doing so you can income split your assets with your kids, get free government grants over the years and slowly pay for the kids' education costs over time. All of these are very positive for the household as opposed to trying to pay for everything in the possible 4 years when they attend post secondary schooling.
How do they work?
Contributions are made with after tax dollars and you don't get a tax refund. However, all investment gains are going to be taxed in your child's hands at their ideally low, student rate and should pay very low, if any, tax.
The government tops up the contribution each year to a maximum of $500. To get this you have to put in $2,500 per year to get the free 20%. This is called the Canada Education Savings Grant (CESG)
The lifetime maximum for the CESG is $7,200, per child.
RESPs have no annual contribution limit, but the lifetime contribution limit per child is $50,000
You can either have an individual account or a family account for multiple children. The family account is generally preferable as it allows some sharing of contributions (but each child can only take out $7,200, maximum, for the CESG)
When it's time to take the money out the contributions are not taxable. The government grants and investment growth are taxable in the child's hands.
If a child does not attend a qualifying post secondary educational institution the contributor can take the contributions out tax free. You lose the CESG and the investment gains are going to be taxable.
At Merrick Financial Inc. most of our clients with children have the above accounts to provide for their education. We also allocate your current and future cash flows to account for the RESP and work towards meeting your other life goals too (bigger house, retirement, paying down debt, etc.)
Book a free initial consultation with Merrick Financial here
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