Planning for your children’s education is an important part of a comprehensive financial strategy. While post-secondary education may be many years away, tuition and living expenses can represent a significant financial commitment when the time comes.
Starting early can give savings more time to grow and may reduce the amount that needs to be set aside later. However, an effective education savings strategy involves more than choosing a contribution amount. Families should consider the potential cost of education, available registered savings programs, other investment options, and how education funding fits alongside priorities such as retirement and estate planning.
Estimating the True Cost of Higher Education
Understanding the potential cost of post-secondary education is an important first step in determining an appropriate savings target.
According to Statistics Canada, Canadian undergraduate students are expected to pay an average of $7,734 in tuition for the 2025/2026 academic year. Average tuition varies considerably by province. International undergraduate tuition is substantially higher, averaging $41,746 nationally for the same academic year.
Tuition, however, represents only one component of the total cost of post-secondary education. Families may also need to plan for expenses such as:
- Housing
- Food
- Textbooks and course materials
- Transportation
- Technology
- Student fees
- Other living expenses
Whether a student plans to live at home or move away for school can significantly affect the overall funding requirement. Families may also want to account for the possibility of studying internationally, which can introduce additional tuition, travel, accommodation, and living expenses.
Developing a realistic estimate based on several possible education paths can help establish a more appropriate long-term savings goal.
RESPs: How They Work and Why They Matter
A Registered Education Savings Plan (RESP) is one of the primary tools available to Canadians saving for a child’s post-secondary education.
Contributions to an RESP are not tax-deductible, but investment income can grow on a tax-deferred basis while it remains in the plan. RESPs may also qualify for government education savings incentives, including the Canada Education Savings Grant (CESG).
Under the basic CESG, the Government of Canada contributes 20% of eligible annual RESP contributions, up to $500 per beneficiary each year. A $2,500 annual contribution would therefore generally qualify for the maximum $500 basic CESG for that year.
Unused basic CESG room can also be carried forward. Depending on available grant room, this can allow families that did not maximize contributions in previous years to receive up to $1,000 in basic CESG in a later year.
The maximum lifetime CESG is $7,200 per eligible beneficiary. Families with lower or middle incomes may also qualify for an additional CESG based on adjusted family net income.
RESP contributions are subject to a $50,000 lifetime contribution limit for each beneficiary. There is no annual RESP contribution limit, which provides families with some flexibility in determining when and how contributions are made.
Other federal and provincial education savings incentives may also be available depending on the beneficiary’s circumstances and province of residence. Reviewing eligibility for these programs can help families make full use of the support available to them.
Beyond RESPs: Other Ways to Fund Education
Although RESPs provide valuable tax and grant advantages, they do not necessarily need to be the only component of an education savings strategy.
Families that have maximized RESP contributions or require additional flexibility may consider non-registered investment accounts. Unlike RESPs, these accounts are not subject to the same education-specific withdrawal requirements or lifetime RESP contribution limit. However, investment income and capital gains may have tax implications depending on the investments held and the account owner’s circumstances.
Trusts may also be considered when education funding is part of a broader estate or wealth-transfer strategy. A trust can provide greater control over how and when assets are distributed to beneficiaries, but it can also involve additional legal, tax, administrative, and financial considerations.
For families considering these strategies, the appropriate structure will depend on factors such as available assets, tax circumstances, estate-planning objectives, and the level of flexibility required.
How Much Should You Save, and When?
There is no single education savings target that will be appropriate for every family. The amount required will depend on factors including:
- The child’s current age
- The expected age at which post-secondary education will begin
- Current savings
- Expected tuition and living expenses
- Whether the child is likely to live at home or away
- Expected investment returns
- The family’s available cash flow
- Other financial priorities
Starting earlier can provide more time for investment growth and compounding, potentially reducing the amount that must be contributed each year to reach the same long-term target.
Families may take different approaches to funding an RESP. Some may make larger contributions while a child is young to provide more time for potential investment growth. Others may contribute consistently over many years or increase contributions as their financial circumstances change.
Rather than focusing on a single contribution formula, it can be more useful to establish an initial savings target and revisit it periodically. As a child approaches post-secondary education, expected costs and education plans generally become clearer, allowing the strategy to be adjusted accordingly.
Balancing Education Funding With Other Financial Goals
Education savings should be considered within the context of a family’s broader financial plan.
Parents may simultaneously be saving for retirement, paying down a mortgage, maintaining emergency savings, investing for other goals, or planning to transfer wealth to the next generation. Directing too much capital toward one objective can affect progress toward others.
Retirement planning deserves particular consideration. While students may have access to scholarships, grants, employment income, government assistance, and student loans to help finance their education, those same funding options are generally not available to finance a parent’s retirement.
The appropriate balance will depend on the household’s income, assets, liabilities, time horizons, and priorities. Families with substantial assets may also incorporate education funding into estate planning, gifting, or trust strategies.
Reviewing these objectives together can help ensure that education funding supports rather than competes with the family’s broader financial goals.
What Happens If Your Child Doesn’t Use All the Funds?
Families may be concerned about contributing to an RESP if they are uncertain whether their child will pursue post-secondary education. However, RESPs offer several options when the original beneficiary does not use all available funds.
Depending on the type of RESP and applicable rules, it may be possible to transfer certain amounts to another eligible beneficiary, such as a sibling.
If the RESP is closed without being used for education, the subscriber’s original contributions can generally be returned without additional tax because RESP contributions are made with after-tax funds. Government grants that cannot be transferred to another eligible beneficiary generally need to be returned to the government.
The treatment of the plan’s accumulated investment earnings differs. Under certain conditions, these earnings may be paid to the subscriber as an accumulated income payment (AIP). These payments are generally subject to regular income tax plus an additional tax.
There are circumstances in which up to $50,000 of accumulated RESP earnings may be transferred to an RRSP, provided the applicable requirements are satisfied and sufficient RRSP contribution room is available.
Because RESP withdrawal and transfer rules can vary depending on the circumstances, families should review the applicable requirements before making changes to an existing plan.
Building Education Savings Into Your Financial Plan
Saving for a child’s education involves more than determining how much to contribute to an RESP each year. An effective strategy considers the potential cost of education, available government incentives, investment options, tax considerations, and the family’s other short- and long-term financial objectives.
Starting early can provide valuable time for savings to grow, but the strategy should also evolve as circumstances change. Changes in income, investment performance, education plans, and other financial priorities may all affect how much a family should save and where those funds should be held.
Regularly reviewing education savings as part of a broader financial plan can help families determine whether they remain on track and make adjustments before post-secondary expenses begin.
For families considering RESPs, non-registered investments, trusts, or a combination of strategies, professional financial advice can help determine how education funding fits within their overall financial picture.
