RESP Investing In Your Child’s Education-The Basics

Registered Education Savings Plan : The Basics

What is an RESP?

Being concerned about how to afford a college education for my son, I made some enquiries about a Registered Education Savings Plan, or RESP.  This is a special savings account that makes provision for post-secondary education costs. If you are like me savings and investing are very important to my family. Those who subscribe to a RESP are also entitled to receive the government’s Canada Learning Bond (CLB) if they qualify, and the Canada Education Savings Grant (CESG) which, as I found out, can provide a welcome boost to the funds.

Who is it for?

An RESP is set up to provide financial support for those aged 17 years and over, and who are undertaking eligible courses of study.  Contributors to a RESP are normally parents or guardians; however, a grandparent, other relative or even a family friend can also make contributions.

wagner51's own temporary SIN card, scanned and...

How do you get one?

A simple two-step process helped me to get things underway.  First of all I checked out my Social Insurance Number (SIN), and then I chose an RESP provider.  My SIN gave me access to government benefits and programs and, when I began to research RESP providers, I found there were a number of options – I could go to a reputable bank, credit union, umbrella company, or other financial institution to get the process started.

Make sure you research who you decide to go with as you will be with them for a long time and they will be managing your contributions.  Know what questions to ask each provider and get the answers before you proceed. Ie: fees involved and any penalties.

What does it do?

An RESP will provide your child with funds towards the costs of a course of study.  The course must be at least three weeks long, and have a minimum ten hours of work or instruction per week to be eligible as a full-time course.  This program can also cover part-time education, as long as at least 12 hours per month is spent on study.

When is it used?

When your child goes to university or college, takes up a place at a trade school, a CEGEP, or at some other institution that is certified by the Minister of Human Resources and Social Development, the RESP can be activated.  Alternative arrangements for children who don’t take up educational courses beyond high school should be discussed with your RESP provider.

Advantages

Getting access to the CESG is a major advantage of having a RESP; the plan acts like a tax shelter, as contributions will have been paid at the time funds are deposited.  In the case of the CESG, the government will pay a percentage of funds saved directly into the RESP.  The actual amount available will depend on the net income of the family up to a maximum $7200.

Families with lower incomes can additionally benefit if they are eligible for the Canada Learning Bond.  For example, if you already receive National Child Benefit you could benefit from a lump sum deposit when you start your RESP plus an annual contribution thereafter.

The use of an RESP can also give you a clear goal to budget your money towards. Setting up a direct debit can ensure a regular amount is paid into the RESP. Having all of your finances recorded and accounted for can also allow you to budget sensibly and see where you are spending unnecessarily. Keep all of your receipts and analyze your spending, this will allow you to see where your money could be better spent. Setting yourself a weekly spending amount is also useful. Try to pay using cash; using cards is far too easy, allowing you to quickly go over your limit. Remember to always shop around for the best bargains, looking online allows you to compare prices from a number of retailers, and there are often coupons available for all sorts of products.

There are further financial incentives depending on where you live.  In Alberta we have the Alberta Centennial Education Savings (ACES) grant, which contributes a lump sum for babies where a RESP is in place, then annual additions at certain ages throughout the school years.  In Québec there is a similar incentive to save for future educational needs.

Disadvantages by Mr.CBB

I believe all parents should set up a registered education plan for their child as education in an investment worth investing in and so is your child.

For further help and information check with Human Resources and Skills Development Canada or your RESP provider – remember this can be a bank, credit union, or other financial body.

This has been written by Katie Green, who is a freelance writer with an interest in business and finance related matters.

Photo’s-Copyright (c) 123RF Stock Photos

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Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. Joanna Cheevers says:

    Thanks for the refresher. Started an RESP the year my daughter was born and have taken advantage of the govenment assistance. I started early and continue to invest every year while I have the money to do it, could change in the future but at least the money I have invested up until now has a chance to grow over the next 12 years.

    • Thanks for your comment Joanna…..
      You know I’m sure your daughter will appreciate anything that she can put towards her education. I was never fortunate to have any help so having no education debt or not is much is better than nothing. Cheers Mr.CBB

      • Joanna Cheevers says:

        I as well. Grew up with a single dad after my mom died when I was young, and with 3 other siblings, including a twin brother also going to school at the same time, he just couldn’t afford to contribute much. But I was able to put myself through University and spent close to 10 years paying it off. That’s why I decided to invest in the RESP so that she hopefully won’t have the debt like I had when she is finished with school.

        • If you can do it then certainly don’t miss the opportunity but for some paying off mounds of debt and saving for a rainy day make take priority over the RESP but I always say balance is key. Mr.CBB

  2. Wendy Ann says:

    Great article. I was wondering if it is still worth putting money into this as my daughter is going in to grade 9 in the fall. We are just in the position to start saving. What would come first an emergency savings fund or money saved for my daughters education. It is so hard when we just got out of all our debt and are just starting to save a small amount each month. So confused on what this small amount should be going towards. Any suggestions,

    • What’s more important is the food on the table and the roof over your head. If you can balance the money some for ES and some for her education but it would only be in there for a few years. I would likely talk to an advisor about that. If its really small and you have no ES I would say ES first. Sometimes there are kids that have to pay their own way through school like me for example. It just means your daughter needs to think about saving for her education with a part time job on weekends or after school. Once you build your ES to about 3-6 months of your expenses “needs” then I would consider the RESP but I would advise making a phone call to see what the pros say. Don’t be left with no ES fund though. IMO Mr.CBB

  3. canadianmdinvestor says:

    What does the author recommend investing the RESP proceeds in??

  4. How you choose to invest is entirely up to your personal preferences and circumstances. The type of RESP you choose really depends on what you feel will suit you, (and of course who you are hoping to benefit with the RESP). I personally used a family plan; if my son decides against carrying on his education I can still use the money for another family member.
    An individual plan limits the beneficiary to one person, again if my sons chooses to not carry on his education I would then have the problems of how to collapse the plan etc.
    I don’t personally have much experience with pooled plans, I believe each beneficiary receives equal payment, and anyone can pay into it.
    I would most likely recommend a family plan, it allows myself and other family members flexibility with how often, and how much we make in the way of payments.

    • canadianmdinvestor says:

      I was wondering about investment types and a strategy. Fixed income? Equity? What mixture is suitable, considering the age of children, etc.

      A large topic, and a topic for a future post maybe…

      Great info…

  5. Great info! I started my sons RESP when he was about 4 months old (as soon as I got his SIN and BC). So does the RESP act as a tax shelter then like an RRSP? If so, I didn’t know that lol.

  6. Christine Weadick says:

    Interesting article. My daughter has an RESP for my grandson, who just turned 3, so she has plenty of time to build it. Her friend recommended the woman that set it up for her so I’m not sure on the particulars but she’s happy with it and I’m sure he will be too once he’s old enough. She also got life insurance as she is a single mom. The insurance company questioned why she was getting it at only 29 years old but she got it and the agent did understand. She does have to think about things like that for the Little Mr…..

    • I think if you have kids it’s a good idea to have life insurance. Mrs.CBB has had life insurance for a while now even though she has no kids… she just wanted to get it early on. Thanks Christine! Mr.CBB

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