Tears of joy spring to your eyes as you watch your high school graduate cross the stage and receive that hard-earned diploma. You’re filled with pride and excitement for the journey ahead.

But you can’t help worrying a little.

The looming cost of tuition, books, and living expenses is hefty. Maclean's magazine estimates that an undergrad living off-campus will spend an average of $19,498.75 a year.

Many of our clients have diligently saved for their children's education, hoping to help them graduate without incurring financial strain and student debt.

When the time comes, though, they worry about whether their savings will be enough.

That’s why one couple came to us for guidance and advice when it was time to switch from saving to spending on their child’s education.

We ran the numbers to create a clear picture of how much money was available and when it would be needed.

Then, we identified a few strategies they could use to help offset the costs associated with postsecondary education.

First, we outlined a strategic plan for RESP withdrawals to ensure they didn’t pay more tax than necessary.

Money in the RESP falls into one of two categories, each of which has different tax implications:

●       Educational Assistance Payments (EAPs) include any grant money as well as income generated within the account. These funds are paid to the student and are taxable.

●       Your contributions can be withdrawn without incurring any taxes for you or the student.

By understanding the funds available in each category and planning withdrawals strategically, we ensured that the student’s income didn’t exceed their basic personal amount. That way, they would not owe any taxes, since their total income wouldn’t be high enough.

Next, we identified an opportunity for wealth building.

Our clients had always wanted to purchase an investment property, but it never seemed to be the right time.

Now, their child needed a place to live while attending university in a different city. By buying a home for their child to share with several roommates, they could lower the cost of accommodations while collecting rents that would cover the mortgage and expenses. 

Win, win.

Working with a savvy mortgage professional, our clients learned that they could restructure their mortgage to provide capital for the purchase of an investment property. Even better, they could take advantage of tax efficiencies to pay off the mortgage sooner and dramatically reduce the amount of interest they’d pay over time.

Although my clients planned to cover the cost of tuition, food, and rent, they decided that spending money would be their child’s responsibility.

They wanted their kid to have some skin in the game.

Taking it as a learning opportunity, they sat down as a family and calculated how much spending money their child would need to earn over the summer to carry them through the school year.

They discussed budgeting, savings strategies, and options for earning interest on the funds until they were needed.

After all, university should be as much about learning life skills as it is about classes and books!

These strategies allowed my clients to fund their child’s postsecondary education with money left in their RESP at the end of the four year program.

And because that money was from their original contributions (having used the grant and income up first) they were free to move it to their own RRSPs.

Want to discuss strategies for managing the high cost of postsecondary education? Book a call today.