RESP or TFSA? What every parent should know when budgeting for a child's future



    
    CIBC's Jamie Golombek offers advice on choosing the right educational
    savings plan
    

    TORONTO, Sept. 3 /CNW/ - With summer drawing to a close and the start of
another school year just days away, many parents will have their child's
education - and its cost - on their minds. While the Registered Education
Savings Plan (RESP) remains the principal savings and investment vehicle for
post-secondary education, the debut of the Tax-Free Savings Account (TFSA) in
2009 introduced Canadian parents to a flexible new option to consider.
    "Whether post-secondary education is years away or just around the
corner, TFSAs and RESPs both offer relative advantages which vary depending
upon the contributor's situation," says Jamie Golombek, Managing Director of
Tax and Estate Planning for CIBC. "When determining which registered savings
plan will be most beneficial it's vital to factor in your tax rate, liquidity
needs, your timeline and the level of education the student will likely
pursue. A professional financial advisor can help you assess these variables
when choosing a course of action."
    To help investors decide, Golombek offers an overview of both plans and
suggestions for whom they suit best:

    
    Saving with a RESP:
    -------------------
    
    "The clear advantage of using a RESP over a TFSA is the potential to
augment the plan with free government money in the form of Canada Education
Savings Grants (CESGs)," says Golombek. "Parents should generally contribute
the maximum amount when possible to their child's RESP to maximize the CESGs."
    Enhancements to CESGs in 2007 raised the maximum annual CESG per
beneficiary to $500, based upon a $2,500 contribution at 20%. If there is
unused grant room from previous years, the CESG could increase to $1,000 per
year, per child through additional contributions to a lifetime CESG maximum of
$7,200.
    Other considerations:

    
    -   RESP contributions are not tax-deductible but investment income
        earned is tax-sheltered until withdrawn
    -   Money paid out of the RESP as an Educational Assistance Payment (EAP)
        is taxed in the hands of the student (usually at a low or even zero
        tax rate)
    -   EAP funds can be paid when the student is attending a university,
        college, or other post-secondary educational institution recognized
        by the government
    -   The annual RESP contribution limit was eliminated in 2008, allowing
        benefactors to contribute as much as they can to a child's plan
        within any given year (to a lifetime maximum of $50,000)
    -   If no beneficiaries ultimately pursue post-secondary education, the
        subscriber can still get all of his or her contributions back tax-
        free. Any accumulated income can either be contributed to the
        subscriber's RRSP if he or she has unused contribution room, or can
        be paid to the subscriber but may be subject to a high rate of tax.
        Any CESGs must be returned to the government.

    Saving with a TFSA:
    -------------------
    
    Launched in January 2009, TFSAs allow investors to contribute up to
$5,000 annually and invest in cash deposits, GICs, mutual funds and other
investment vehicles. "One of the most compelling advantages of the TFSA is its
flexibility. Investors are free from many of the rules and restrictions that
apply to other registered savings plans," says Golombek.
    Funds can be withdrawn at any time, tax-free, for any cause, allowing
parents to use TFSA money towards school tuition, at the primary, secondary as
well as post-secondary levels. A TFSA can also be used by parents who have
already contributed the maximum amount to their child's RESP to achieve the
CESG and are looking to invest an additional $5,000 towards education in
tax-advantaged manner.
    Other considerations:

    
    -   Contributions are not tax-deductible but plan earnings and
        withdrawals are tax-free and withdrawals can be made at any time
        (depending on the investments chosen), for any reason
    -   Funds withdrawn can be re-contributed beginning the following year
    -   Any unused contribution room can be carried forward from year to year
    

    Golombek's final advice to parents is to make a move today if they
haven't already done so. "No matter what plan you choose, start planning ahead
for tuition and other educational costs as far in advance as possible to let
time make the most of your contributions," says Golombek. "Talk to your
financial advisor about the types of plans and contribution options available
to you and get started today."
    For more information please visit your nearest CIBC branch or
www.cibc.com.

    CIBC (CM: TSX;NYSE) is a leading North American financial institution
with nearly 11 million personal banking and business clients. CIBC offers a
full range of products and services through its comprehensive electronic
banking network, branches and offices across Canada, and has offices in the
United States and around the world. You can find other news releases and
information about CIBC in our Press Centre on our corporate website at
www.cibc.com.





For further information:

For further information: Media contact: Doug Maybee, Director, External
Communications and Media Relations, (416) 980-7458 or doug.maybee@cibc.com


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