College and university is expensive, but education is one of the best ways to ensure a stable, financially secure future. As tuition fees continue to rise and student loans continue to burden emerging graduates, parents are worrying about how they will put their children through college. The answer is RESPs.
What’s an RESP?
RESP stands for Registered Education Savings Plan. It is a government program that allows you to start saving for your children’s education while they are still young. You put money into it, but there are also certain contributions and grants the government adds in. Money from the government to pay for college? Yes please!
An RESP has three main people involved. The subscriber contributes to the RESP. The promoter administers the plan and pays it out to the beneficiary. It often looks like this: parents (subscribers) contact a promoter (such as bank advisor, investment advisor, Knowledge First Foundation, etc.). The subscriber sets up a payment plan with the promoter. The promoter puts the funds into the RESP and also applies for any applicable government grants. When the beneficiary is of age, the money that was saved and invested gets put towards his or her post-secondary education.
Note that some promoters charge a fee for their services.
RESPs’ investment growth is tax deferred until withdrawn. As the student accesses the funds, the money is taxed on the students tax return, which is usually taxed much less than their parents.
When RESPs first arrived on the scene in 1998, there was an annual contribution limit. That changed in 2007 when the limit was scrapped. However, some limitations still apply. The Canada Education Savings Grant (CESG) contributions to your RESP have special considerations. Learn all about them by clicking here.
How much can you save?
How much money you save for your child’s education will be based on your contributions, grants and when you started investing. However, even modest contributions starting when the child is young can add up dramatically over time.
For example, let’s say you open an RESP for your child on their first birthday. You put in $75 per month, using your Universal Child Care Benefit (UCCB) to foot the bill. You get a modest 3 per cent rate of return and assuming you take advantage of the CESGs available to you, you can easily have around $23,000 ready for your child by his or her 18th birthday.
It’s worth it
Higher education greatly increases life satisfaction, opens the door to more options, has a financial payoff and contributes to every aspect of your life. Debt robs you of health, money and finances. With tuition always on the rise, opening an RESP is one of the best ways to ensure your children have cash available to them when they are ready for college. Leveraging your UCCB means the money to fund the RESP doesn’t even have to come from your household budget. It’s never too late to start saving for your children’s future. If you have yet to look into RESPs, check them out today.