IG Wealth’s Sara Kinnear shares what advisors should watch for when guiding families through education savings
For many Canadian parents, Registered Education Savings Plans (RESPs) remain one of the most powerful tools to save for their children's post-secondary education.
According to the Government of Canada’s 2023 Annual Statistical Review, more than 1.5 million children in Ontario alone are beneficiaries of the Canada Education Savings Grant (CESG), with RESP withdrawals totaling in the billions.
With the federal government recently introducing automatic enrolment for the Canada Learning Bond (CLB) and RESPs, advisors are increasingly tasked with helping clients make the most of these programs.
Sara Kinnear, director of tax and estate planning at IG Wealth Management, says the starting point is straightforward: ensure clients are maximizing available government grants.
“If you start saving when the child is born, you'd be contributing $2,500 a year until you've hit the $7,200 lifetime limit of grant,” she says.
Under current rules, once an RESP is opened, the government matches 20 per cent of the first $2,500 contributions made each year, regardless of the family income. The grant can provide up to $500 per year per child, and depending on the level of income, some families can receive an additional round of CESG for the first contribution.
Dumping money earlier on can help clients take more advantage of tax-deferred growth, Kinnear says.
In some cases, she’s seen clients take an aggressive approach, contributing the full $50,000 lifetime maximum upfront, knowing they’ll only receive the first year’s grant.
“They're taking the assumption that the tax, the duration of that tax-deferred growth over time, will outweigh the lost grant that you're not going to be able to get,” she says.
What advisors should perhaps caution clients on is early withdrawals. Kinnear explains that although it sometimes might be unavoidable for clients to make withdrawals before beneficiaries start school, that can cause a “clawback of the grant.”
“You're losing the ability, for that free money to keep working for you,” she says.
That’s why Kinnear emphasizes that it’s critical for advisors to regularly check in.
“This sounds basic, but it is pretty important for advisors to check in with their clients, to see, ‘Hey, is your baby going to school yet?’ Because once they're in school, that's when you want to start the educational assistance payments and start the withdrawals,” she says.
Kinnear says in the past, she has met with clients who forgot to initiate withdrawals when the student began school.
One of the main misconceptions she finds clients and advisors can have around RESPs is that they're only for traditional college and university programs.
RESPs are also viable for trade schools, vocational programs and anything that meets the criteria for post-secondary educational institutions and provides post-secondary learning.
“[Under] the Income Tax Act, there's a specified educational program, and then there's the qualified educational program,” she says.
The best way, Kinnear says, advisors can help with education planning is by considering it alongside their clients’ broader financial goals.
“It's one aspect of your financial plan, so if you have limited dollars, you need to decide whether to spend them all on education planning, or also put some toward retirement or home ownership,” she says. “Usually, you'd probably want to spread it out and put some, some in all of those buckets, rather than just one, one bucket. But again, everyone is different, and everyone has different priorities, so that's part of the ‘know your client’ process.”
