Tuesday, October 29th, 2019
You'd naturally expect that people would regret taking on debt. But to see 77% of Canadians under 40 regret taking on debt for school might surprise you.
Given that future education, training, or upgrading your skills is something many people are considering, let's take a look at some of the options for planning for those costs.
The reality of having an employee stay with a company for their entire career and retire with a gift of a gold watch is more and more unusual these days. So too are employers who foot the bill for diplomas and degrees. But it still happens.
Some companies have programs in place that will pay the costs of education like an MBA, as long as you stay with the company for a certain period of time. They may add a clause that says you have to pay back the tuition if you leave within a specified amount of time.
When it comes to evaluating compensation packages, if future education is something you might be interested in, check to see if the company offers this. It's not always just about income when comparing job offers.
If you've heard of the Canada Revenue Agency Home Buyers' Plan (HBP), which allows you to make an interest-free withdrawal from your RSP to help with buying a home, there's a similar program for education costs called the Lifelong Learning Plan (LLP).
The way it works: You can withdraw up to a maximum of $10,000 per year, or up to $20,000 in total, from your RSP under this program and those withdrawals won't be subject to tax. Also similar to the HBP is that you'll have a repayment period to re-contribute these funds back into your RSP.
Because you need to be in school full-time to use the program, your income might be very low in those years, so the relative tax-savings benefit may be less than you might think. Not a lot of people use the LLP compared to the HBP.
People might opt to use this if they have money in their RSP at a time when they're thinking about going back to school. Using the LLP is rarely something that's planned years in advance.
If you're planning longer term, and going to school is farther down the road, setting up a savings plan in a Tax-Free Savings Account (TFSA) or an adult RESP are possible options.
You could set up a separate TFSA with a specific goal of covering education costs and start putting money into it on a regular basis, just like with any specific savings goal.
You could also choose to open an RESP for yourself as an adult, since you can make contributions until the year the beneficiary (you, in this case) turns 31, but note that you wouldn't qualify to receive the Canada Education Savings Grant as an adult.
One reason why some people might choose to set up an RESP rather than a TFSA is that they may be more likely to use the funds for education costs, whereas with a TFSA, they may be more likely to spend the money on other things.
Few people use an RESP for themselves and opt for the TFSA instead.
If None of these Options Work
If you don't have the funds set aside in advance, or don't have an employer that provides funding, you could look into other financing options. Some people use a line of credit or loan, but this could be costly over the long term. You'll want to avoid using a credit card if it leads to carrying a balance from month to month, since the interest charges would be substantial.
This article is provided for information purposes only. It isn’t meant to be relied upon as financial, tax or investment advice, makes no guarantees about future financial conditions or performance, and shouldn’t be considered a recommendation to buy or sell investments or financial products....Information contained in this article, including information related to interest rates, market conditions, tax rules, and other investment factors is subject to change without notice, and Tangerine Bank isn’t responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication, and Tangerine Bank doesn’t guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.