When it comes to saving for a post-secondary education, it’s hard to go wrong with an RESP.
As the name suggests, a Registered Education Savings Plan (RESP) is a Government-registered savings plan intended to assist funding post-secondary education after high school.
RESPs can be opened for a child, yourself, or another adult. The person who benefits from the RESP is aptly called the "beneficiary". The person who opens the plan is known as the RESP “subscriber”.
Perhaps the biggest selling point of an RESP is the guaranteed return that you get on your investment through the government's Canadian Education Savings Grant (CESG) and the Canada Learning Bond (CLG).
With the CESG, you basically get 20% on every dollar you contribute (up to a lifetime max of $7,200 per beneficiary), and the CLB is designed for low-income families and doesn't even require contributions. (Learn more about How to Boost RESP Savings with Grants, Bonds, and Benefits).
There are three types of RESP, but they are all intended to act as a savings vehicle for post-secondary education.
What’s common between all RESPs is that they act very similar to other registered plans—such as TFSAs or RRSPs—in that the investments and earnings held within the plan can grow tax free until withdrawn.
In addition to earnings from investments like GICs, mutual funds, bonds, stocks, or exchange-traded funds (ETFs), you can earn money from the federal government if you are saving for a child aged 17 and under.
When the person who will benefit from the RESP (the “beneficiary”) enrolls in post-secondary education, they can start receiving educational assistance payments (EAPs) from the RESP in their name.
In most cases, you can contribute to an RESP whenever you like. While some plans may require monthly or annual contributions, all RESPs have a lifetime maximum of $50,000 per child.
Contributions to an RESP are not tax deductible, and EAPs that are withdrawn will count as the student’s income.
An RESP can stay open for up to 36 years. With some plans, they can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.
With undergrad tuition fees steadily increasing year to year, you’ll want to save for your child’s education for as long as possible to take advantage of compound interest on your investments.
Are you ready to start saving for education?
Online brokerage services are offered through Qtrade Direct Investing, a division of Credential Qtrade Securities Inc. Qtrade, Qtrade Direct Investing and Write your own future are trade names and/or trademarks of Aviso Wealth.
