Timely template letter: Education savings options

(May 2005) Last year, Canadian undergraduate students paid an average of $4,172 a year in tuition fees. Some professional programs charge significantly higher amounts than that; first-year tuition for a law student at the University of Toronto is currently set at $16,000. Add in books, food and housing costs and you could be looking at a very significant expense. Use this customizable template letter to let your clients know about RESPs, the Canada Education Savings Grant and the newly introduced Canada Learning Bond.

Dear [Client’s name]

If I told you that the government was handing out money for free, would you be interested? No, you won’t have to testify at the Gomery inquiry if you accept the offer. All you have to do is set some money aside for your child’s (or children’s) education — and that’s something you may have been considering anyway.

According to information released by Statistics Canada last year, university tuition fees have increased at an average annual rate of 8.1% between 1990/1991 and 2002/2003 — that’s four times the rate of inflation. Last year, Canadian undergraduate students paid an average of $4,172 a year in tuition fees. Some professional programs charge significantly higher amounts than that; first-year tuition for a law student at the University of Toronto is currently set at $16,000. Add in books, food and housing costs and you could be looking at a very significant expense.

There are, fortunately, savings vehicles that can help you prepare.

A Registered Education Savings Plan (RESP) is a little bit like a Registered Retirement Savings Plan (RRSP). While you may not deduct the contributions you make, your earnings do accumulate tax-free, and when your child withdraws funds, the growth is taxed in his or her hands — not yours. Since students tend to have little other income, they’ll probably end up paying very little (if any) taxes on the money they receive.

Several years ago, the government introduced several changes to make RESPs more attractive and encourage Canadians to start setting money aside for their children’s education. Students may now attend a wide variety of qualifying programs, including not only university but also community colleges and trade schools. EEven if your child decides not to pursue post-secondary education, your money doesn’t go up in smoke — you can roll all of your contributions and up to $50,000 of your earnings into your RRSP provided you have unused contribution room. In the worst case scenario, you’ll still keep 80% of your profits and receive a cash refund of your capital.

There’s also a lucrative Canada Education Savings Grant (CESG) available to anyone who opens an RESP. The government will top up your plan with a grant equal to 20% of your contribution, up to an annual maximum of $400 and a lifetime maximum of $7,200.

You don’t have to be rich to take advantage of the plan, either. In fact, if your family earns $35,000 or less a year, changes introduced a few months ago make you eligible for a CESG of 40% on the first $500 you deposit every year. There’s also a new Canada Learning Bond that will offer children who qualify for the National Child Benefit supplement a special $500 payment at birth, then $100 every year for the next 15 years.

If you’re interested in learning more about the education savings options available to you, I hope you won’t hesitate to contact me at the number above.

Yours sincerely,

[Your signature]

[Your name]

(05/09/05)