Does Your Education Savings Strategy

Make the Grade?Effective to December 31, 2010

Turenne JosephTurenne JosephSecurity Financial Advisor, Mutual Funds RepresentativeSecurity Financial Advisor, Mutual Funds Representative Licenced in Québec, Ontario and British ColumbiaLicenced in Québec, Ontario and British Columbia Investors Group Financial Services Inc. Investors Group Financial Services Inc. (in Québec, a financial services firm.)(in Québec, a financial services firm.)

turenne.joseph@investorsgroup.com

Is provided by Investors Group Financial Services Inc. (in Quebec, a financial services firm).

Is specifically written and published by Investors Group and intended as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Clients should discuss their situation with their Investors Group Consultant for advice based on their specific circumstances.

Trademark(s) owned by IGM Financial Inc. and licensed to its subsidiary corporations.

Importance of planning for a child’s education and the methods in which you can save

Cost of education

Methods of saving for post secondary education

Features and Benefits of RESPs

The cost of post secondary education is skyrocketing

Opportunities for better employment usually increase with higher education

Long-term planning can overcome the financial burdens of higher education

4 524 $

535 $865 $

2 023 $

3 749 $

0 $500 $

1 000 $1 500 $2 000 $2 500 $3 000 $3 500 $4 000 $4 500 $

1972 1982 1993 1998 2007

Source: Statistics Canada, The Daily, October 18, 2007

Average earnings based on highest level of schooling:

Less than high school $21,230

High school and/or some post secondary $25,477

Trade certificate/diploma $32,743

College certificate/diploma $32,736

University certificate/diploma/degree $48,648

Source: 2001 Census – Statistics Canada. Last modified 09/01/2004.

You can pay for a post-secondary education from one of three sources:

current income

borrowed funds

savings

Investment in the name of the minor

Formal trust

Informal trust (“in trust” accounts)

Registered Education Savings Plans (RESPs)

Advantages

Inexpensive

Child pays tax on capital gains and compound income

Can use proceeds for any purpose when child reaches the age of majority

Disadvantages

Loss of control

Parent/grandparent pays tax on income (unless it’s the child’s money)

Parents may not approve of use of proceeds

Advantages

Control

Child pays tax on capital gains and compound income (if irrevocable)

Can use proceeds for any purpose outlined in trust document

Disadvantages

Expensive

Parent/grandparent pays tax on income (unless it’s the child’s money or a testamentary trust)

Advantages:

Inexpensive

Can use funds for any purpose (not necessarily education)

Disadvantages:

May lose control at age 18/19 (is it an irrevocable gift?)

Lack of certainty on who pays the tax (is it an irrevocable gift?)

Parents may not approve of use of proceeds

In Quebec, it is preferable to open a minor account

Advantages

Inexpensive

Control

Tax No tax until withdrawals begin

Child pays tax on growth, grants

Contributions come outtax-free

Can use contributions for any purpose

Potential for government grants

Disadvantages

Use of growth, grants restricted

Contribution limits

Tax deferred accumulation of earnings

Ability to split income with the beneficiary

Government grants

Canada Education Savings Grant (CES Grant)*

Basic

Additional

Canada Learning Bond (CLB)*

Alberta Centennial Education Savings grant (ACES)*

Quebec Education Savings Incentive (QESI)*.

*The CES Grant and CLB are provided by Human Resources and Social Development Canada. * ACES is provided by the Government of Alberta.* QESI is provided by Revenue Quebec.

The person who establishes an RESP is called the subscriber:

Subscriber contributes to the RESP

Subscriber does not have to be related to the beneficiary

Maximum per beneficiary: $50,000 lifetime

No contributions are permitted after the 31st year following the year of the plan’s

establishment.*

Plans must terminate before the earlier of:

The end of the 35th year following the year in which the plan was established **, or

90 days after the end of the year in which an Accumulated Income Payment (AIP) was first paid out**

*36th if a specified plan for disabled beneficiary

* *End of the 40th if a specified plan for disabled beneficiary

Paid to RESPs for children who

Will turn 17 or younger in the year**

Are resident in Canada,

Have a Social Insurance Number, and

Have made an eligible RESP contribution

Don’t have to be an RESP beneficiary to generate CES Grant room.

Basic CES Grant available for contributions in 1998+.

Additional CES Grant available for contributions in 2005+.

*CES Grant is provided by Human Resources and Social Development Canada

** Special rules for children turning 16 or 17 during the year

Child generates Basic CES Grant room of $400/year from 1998-2006 and $500/year from 2007+.

Maximum Basic CES Grant paid in a year is $1,000 if the child has that much room.

Unused Basic CES Grant room carries forward.

Some children also eligible for Additional CES Grant (maximum either $50/year or $100/year).

Additional CES Grant room does not carry forward.

Lifetime CES Grant (Basic + Additional) = $7,200

Maximum annual Basic CES Grant is the lesser of:

20% of contributions, or

Lesser of: $1000 or

unused CES Grant room.

Maximum annual Additional CES Grant is either:

20% of the first $500 of contributions (max $100), or

10% of the first $500 of contributions (max $50).

The federal government will pay a Canada Learning Bond* (CLB) to RESPs for children where:

The child is a Canadian resident;

The child is born in 2004 or later;

The child’s family is receiving the National Child Benefit supplement to the Canada Child Tax Benefit; and

The child is 15 years of age or younger.

Amount = $500 in first year + $100/year for remaining eligible years to a maximum of $2,000.

Not a matching program; no contributions required. Unclaimed CLB carries forward until 21st birthday.

Canada Learning Bond is provided by Human Resources & Social Development Canada

Child’s parents must be resident in Alberta

One-time ACES grant of $500 – child must have been born in 2005 or later. No matching requirements

ACES grant of $100 – child must be turning 8, 11, or 14 and be enrolled in school in Alberta. 100% match on $100 ACES

Lifetime maximum = $800

ACES is provided by the government of Alberta.

Child must be eligible for Basic CES Grant, and a Quebec resident at the end of the year in which the contribution is made.

Contributions made after February 21, 2007 will be eligible to the QESI.

QESI amount = 50% of the CES Grant amount**

The QESI can reach a cumulative maximum of $3,600 per child.

EAPs to a beneficiary can only include QESI if the beneficiary is a Quebec resident at the time of the EAP.

The QESI is provided by Revenue Quebec

* At the time of writing, QESI legislation was not yet finalized (although Bill 79 was tabled on May 8, 2008), nor had Revenue Quebec communicated all its requirements to the financial institutions.

** Subject to some minor exceptions

Contributions are not tax deductible.

Growth accumulates on a tax-deferred basis.

Growth and government grant money are fully taxable once withdrawn.

Growth and government grant money paid to the beneficiary as an educational assistance payment (EAP) is taxed in his/her hands - resulting in income splitting with the subscriber.

The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of your RESP or returns on investment

114 969 $

87 141 $

- $10 000 $20 000 $30 000 $40 000 $50 000 $60 000 $70 000 $80 000 $90 000 $

100 000 $

RESP Regular

Income

Basic CES Grant

Contribution

(pretax)

RESP: Contributing $208.33 at the start of each month for 18 years and 20% grant at the start of each month for 14.4 years and earning 8% “before taxes” over 18 years.Regular Investment: Investing $208.33 at the start of each month for 18 years earning 8% (a portion of the earnings is subject to annual taxation).

Beneficiary must be enrolled in a post-secondary program at a post-secondary educational institution.

The program must either be:

a “qualifying educational program” (QEP), or

a “specified educational program” (SEP).

A QEP requires at least 10 hours per week in course work or study.

An SEP requires at least 12 hours per week in course work or study.

Educational Assistance Payments (EAPs) may be limited to $5,000 in the first 13 weeks (QEPs) or $2,500 per 13 week session (SEPs).

Subscriber may

change the beneficiary of the RESP* or

withdraw the contributions tax-free and pay the RESP income to himself/herself, either:

in cash, subject to taxation plus a special penalty tax in the year of withdrawal, or

directly to an RRSP, subject to a maximum of $50,000 and having available RRSP contribution room.

*Certain conditions will apply.

Does Your Education Savings Strategy Make the Grade?

“RESPs: Does your education savings strategy make the grade?” © Investors Group Inc. 2007 (03/2008) C3147

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