1. Start
contributions early
- You can open an RESP as soon as your child has a SIN number. This can be applied for just after birth and many of our clients start their child’s plan around 2 months of age.
2. Make
contributions regularly
- Prepare for your child’s education by contributing monthly to an RESP. A little goes a long way. Even if you start off small (around $25 a month) it adds up over time.
- Regular contributions help smooth market fluctuations.
- Anyone can contribute to an RESP – a child’s parents, grandparents, aunts and uncles, or close family friends who may be able to contribute if you can’t right now.
3. Take advantage of the
considerable benefits
- The federal government adds to your contribution up to a maximum of $500 per year, per child. This is the Canada Education Savings Grant (CESG) and it is payable up to the year your child turns 17. For a full explanation of eligibility requirements, see the Government of Canada's CanLearn website.
- As long as your contributions remain in the plan they continue to gain interest income and are not taxed.
- RESPs are taxed in the hands of the student who uses them, so the tax rate is typically low.
- Flexibility of withdrawals: it’s up to you to decide how much money you withdraw and when. Withdrawals can be used for everything from tuition and books to living expenses.
- Family Plans are a great way to pool education funds for families with more than one child.
4. Plan
early
- Your child may be in diapers or just starting school but planning early for their education is the best route.
- We recommend, as a start, to take the monthly $100 Child Care Tax Benefit (for children under the age of 6) from the government, and put it straight into their RESP. When you do this right away, from birth, you can come close to funding a good portion of your child’s education, completely funded by the government. If you can’t afford to use the entire $100 for an RESP contribution, something is better than nothing. Even $25 a month is a good start.
- If your child is under 17 it’s not too late to open an RESP
- Traditional college or university
- Technical or vocational school
- Typically all you need is proof of enrollment in a qualifying program.
6. Really
don’t worry – there are four options available to you if your child does not pursue post-secondary education
- Leave the money in the RESP for future use.
- Replace the beneficiary with another child.
- Transfer the money to your RRSP.
- Close the RESP and withdraw the money. Any grants will have to be returned to the government.
7. Team work – Personal Saving and
Government Contributions
- Don’t leave money on the table. Some people have enough money set aside for their child’s education without having to contribute to an RESP. Make sure to examine all the benefits of an RESP: See tip # 3.
RESPs are highly underused in Canada. Be sure to start early to maximize the benefits of compounding growth, government grants and tax sheltered savings. If you have questions about how an RESP works, or how an RESP fits into your overall financial plan, contact us.
