There are few more exciting (or expensive) moments for parents than watching their children enter post-secondary education. And for many Canadians, there’s no greater way to prepare for that milestone than by investing in a Registered Education Savings Plan (RESP), a long-term savings model to store funds for schooling tax-free.
No matter the size of your contributions, a mature RESP can be part of a strong financial plan for aspiring students, helping them handle tuition fees and other assorted campus costs while working towards their degrees and certificates. The government is also standing by to put some money in the pot to incentivize your investment, so starting an RESP is extra beneficial for your kids.
In partnership with Fidelity Investments, we asked one Canadian family how RESPs supported their children’s school plans, not to mention cut down the costs of higher education.
A guaranteed, tax-free investment
You can start up an RESP for your child as early as you want, and can save up to $50,000 for a single recipient. Keep in mind, though, the sooner you start to save, the sooner your RESP will be earning interest. No matter the size of your annual contributions, the education-geared savings plan is allowed to grow tax-free until it’s withdrawn. The money taken out will be taxed at the beneficiary’s income level—but consider that most students just coming out of high school should be billed fairly low.
Though you’ll earn a set interest rate through traditional term deposits, there are other options for making your money grown in an RESP. You could, for instance, make solid gains by investing that RESP money into various mutual funds or exchange-traded funds, though those end results aren’t as guaranteed as term deposits.
South Surrey, BC photographer/blogger Janice Croze has been tucking aside a pre-set amount of money from her savings account each month to put towards her 18-year-old son and 13-year-old daughter’s respective RESPs, since birth. Though she admits her own personal investments and savings have fluctuated during the market’s more volatile periods, the relative safety of an RESP savings account has given her peace of mind in terms of her children’s future. When her son began a business program through UBC Okanagan this fall, she knew exactly how much she was putting towards his hefty tuition costs.
“I feel like having an RESP allows parents to have peace of mind, and it allows kids to have less anxiety [about the future]. I don’t think my kids find it to be a stressful expectation [to begin post-secondary studies], but rather it gives them a confidence, like, ‘Oh, this is what’s going to happen next.’ You’re going to go to school. You have money— we’re planning for it, and you don’t need to stress.”
The federal government boosts your contributions
The federal government is just as committed to helping your children achieve their goals through higher education—it’s just that many folks may not realize it. To the good fortune of parents and students coast-to-coast, the Canada Education Savings Grant (CESG) provides additional support to your RESP, boosting annual contributions by an extra 20%. Depending on how much you contribute to your RESP each year, the federal government is able to offer a maximum of $500 per year, and up to $7,200 across an RESP’s total lifetime. That’s a substantial amount of money to leave on the table, so take advantage of every dollar the government is gladly willing to give.
RESPs can be part of a broader educational support
RESPs are a solid foundation, but consider all the other avenues that can help support a post-secondary education as well. This means applying for any and all scholarships, and seeking out whether your child could be eligible for a variety of provincial and federal grants.
Croze’s son was supposed to be living-in-residence at UBC’s Kelowna campus this fall, but the COVID-19 pandemic has delayed his move (he’s currently studying at-home). Fortunately, the business student was eligible to apply for the recently concluded Canada Emergency Student Benefit (CESB) since his studies were impacted (He’s also currently applying for various government grants to help subsidize other school costs further down the line).
“By the time it was time to find a job [after graduating high school], they weren’t that easy to find. The CESB really helped us—it helped pay for the computer that he needed this year. That was very helpful.”
RESPs support a variety of dreams
Higher education plans can differ greatly from student to student. But whether you’re entering upper academia for the sciences, or training at a recognized trade school, RESPs can be a key piece towards building your best future. Croze says her son had his sights set on earning a business undergrad from an early age, while her daughter, who has just entered the eighth grade, is still unsure about her next step. Rest assured, no matter which educational path she chooses, her RESP will be a valuable asset.
“Even if she’s going to school to become an esthetician, or she wants to become a massage therapist, she doesn’t have to go into a four-year college,” Croze says with confidence,
“[The RESP program] recognizes it all.”
Keep in mind that your child needs to enter a post-secondary institution of some sort to access their RESP. If they decide not to go to school, the capital you invested into the RESP will be returned, without interest, but the extra financial contribution from the government will be gone for good.
There’s plenty of time to make the right decision
As we know, plans often change. Some post-secondary students enter university with a specific plan in place, only to find out a couple of years in that they want to switch to a completely different major. And the unpredictability of life, on and off campus, may mean you’ll need a gap year or two before completing your degree. The good news is that an RESP remains open and accessible for a full 36 years old after it’s first opened. There’s no need to rush your kid into a program if they’re not ready.
RESP funds are also transferable. If Croze’s son, for instance, doesn’t end up needing all of the funds the family has saved for him through his RESP, they can be transferred over to his younger sister’s savings account. This would keep the money invested in education, regardless of the recipient.
Find out more about Fidelity Investment’s RESP options, and more, over here.