How to finance your own continuing education

Proud son with his arm over his jubilant dad as he raises his graduation diploma. There are many good reasons to go back to school: a change of careers (or loss of one) a skill upgrade, or simply personal satisfaction. And by doing your financial-planning homework, you can make sure your budget also makes the grade.

Setting up a savings plan

As soon as you make the decision to go back to school, you should start a savings plan. There are several options to choose from.

Tax-Free Savings Account (TFSA)

Contributing to a TFSA is a tax-smart way to save for your back-to-school fund. You’re allowed to save up to $5,5001 a year, and all returns earned accumulate tax-free. When you need the money, you can make withdrawals when you want2 and not pay any tax. After you return to work and start saving again, you may re-contribute the money you withdrew3 — and continue the tax savings.

Registered Education Savings Plan (RESP)

School isn’t just for kids and neither are RESPs. You can also open one for yourself. You won’t be eligible to receive the Canadian Education Savings Grant (CESG), but like a TFSA, your savings will accumulate returns tax-free inside the RESP.

You will pay tax on the returns once you withdraw the money or close the account, but you’ll pay less tax, provided you or your household is in a lower tax bracket than you are currently.

Lifelong Learning Plan (LLP)

Do you already have money saved in a registered Retirement Savings Plan (RSP)? If so, you can tap into these funds to finance post-secondary education or full-time training for you or your spouse. The Canada Revenue Agency’s LLP lets you borrow up to $10,000 a year (up to $20,000, over four years) from your RSP.

Withdrawals aren’t taxed, but you do need to repay this interest-free loan to your RSP within 10 years. The first payment must be made within 60 days of the end of the fifth year after the first withdrawal. Before you withdraw the money, it needs to have been in your account for 90 days.

Contributing to your RSP and then drawing on the funds under the LLP can be a smart strategy, especially if you are currently in the top tax bracket. You’ll benefit from the tax break now, and then you can withdraw the funds (after the 90-day minimum deposit period) when your tax bracket is lower.

Line of credit

Even if you’ve saved for your return to the classroom, there may be times when you fall short and need to borrow.

Instead of responding to emergencies by accumulating a credit card balance, however, arrange for a line of credit before your first term begins, so you have a lower-interest credit source to fall back on.

TD Canada Trust has a Student Line of Credit, with a low interest rate and easy terms for students, which you can apply for online through EasyWeb Internet banking.

Other sources of assistance

Check with your employer or union to see whether they have any employee education funding arrangements in place. They may cover your tuition, hold your job for you, provide a leave of absence with continued benefits, or allow you to work part-time while you study.

Depending on your circumstances and choice of studies, you may also qualify for government retraining programs. Check your provincial government website.

You may also wish to apply for government student loans, scholarships, or work–study programs. The Financial Aid office of your chosen school is a good starting point to research these options.

Planning for reduced income

Planning ahead also means looking at your current financial picture and evaluating how it fits into a student lifestyle. Will you be able to afford all your current expenditures once you or your spouse returns to school? How much will you need to cut your spending to make it work? Could you make those cuts now, and put the savings aside into your education fund?

The more upfront planning and saving you are able to do, the easier it will be to make the financial transition into being a student again.

1 Annual contribution limit for 2016 is $5,500. Annual contribution limit from 2009 to 2012 was $5,000. Annual contribution limit from 2013 to 2014 was $5,500. Annual contribution limit for 2015 was $10,000. Annual TFSA contribution limit is subject to change by the federal government.

2 Some restrictions may apply depending on the investments chosen.

3 The amount you withdraw can be re-contributed to your TFSA the following year or years without impacting your contribution room.