Setting your kids on the right path with RESPs
As a parent, you know that life goes by fast. One minute you’re wondering why glitter is listed on your eight-year-old’s school supply list, and the next, you’re asking yourself how you’ll be able to afford a $2,000 laptop for university.
That’s where Registered Education Savings Plans (RESPs) come in. They’re the federal government’s way of helping you save for your child’s postsecondary education. In other words, they help you check that laptop, along with tuition, off their school supply list.
RESPs have a maximum lifetime contribution of $50,000 per child, with no yearly contribution limits. They’re tax-deferred, meaning withdrawals are taxed at the student’s tax bracket — which is likely lower than your own. Although that feature alone is a big advantage, the federal government will also contribute 20% on the first $2,500 deposited into an RESP each year through the Canadian Education and Savings Grant (CESG) program. If you don’t contribute in one year, the government allows you to maximize the CESG the following year, when you do. If you contribute $5,000, the government will contribute 20% on the entire contribution amount, not just the first $2,500, for a total grant of $1,000.
In addition, families can receive an additional amount of CESG based on income level. To learn more about income adjustments, visit the Government of Canada CESG website.
As a parent juggling multiple competing expenses and savings goals, you may be at times challenged to find extra savings for this kind of long-term investment. However, you can get more from your RESPs with these simple strategies:
Start early: Even if you only have a small amount to contribute each month, time also plays an important role in growing your savings. Not only are you earning more interest long-term, but you can maximize the CESG contribution by depositing funds every year. Tip: Some parents choose to put away a portion or all of their Child Tax’s credit they receive each month.
Set preauthorized debits: Preauthorized debits are a great solution to help you remember to contribute to an RESP. Setup is fast and easy — you can sit down and plan once, then let the automation do the heavy lifting.
Encourage RESPs contributions as gifts: RESPs are great ways for friends and family to invest in your child’s future. Keep in mind that with larger gifts, you’ll receive more in government grants if you divide the amount and contribute in later years.
Explore different savings and investment options: There are RESP options to suit every child’s education goal, including variable savings, GICs, and mutual funds. Your advisor can help you explore which option is right for you.
Saving in an RESP doesn’t have to be a daunting task. Start by setting an attainable goal and creating a plan that will best meet your family’s needs.
Ready to get started?