A special message for parents and grandparents: the RESP
John Mah - Aug 24, 2023
Post-secondary education is so important to building a bright future for your children and grandchildren. But here’s a hurdle: higher education is expensive. That’s why it makes so much sense to start contributing to an RESP.
Written by: John Mah
Originally Posted: October 10, 2022
Updated: August 24, 2023
Post-secondary education is so important to building a bright future for your children and grandchildren. But here’s a hurdle: higher education is expensive. Annual fees for tuition, books, residence and food can easily top $20,000 per year – and these costs are rising.
That’s why it makes so much sense to start contributing to an RESP – a Registered Education Savings Plan – as soon as you can.
It’s never too early to start! Think about it: you can make government grant-attracting annual contributions until your child or grandchild (or any child!) is 17 and up to $50,000 per child over their lifetime, subject to certain limitations.
An RESP can be used to fund a variety of recognized programs:
Programs outside of Canada are even eligible, if they’re on this list.
Continuing education (Masters, Doctorates, etc.)
Here’s how it works: Anyone can open an RESP account for a child, not just family. Contributions are made with after-tax dollars, up to a maximum of $50,000 per child over their lifetime. The first $2,500 of your annual contribution can attract a $500 grant (called the Canada Education Savings Grant, or CESG) each year the child is under 17, up to a maximum grant amount of $7,200. Additional grants may be awarded in certain situations.
Another great feature of the RESP is that the growth and income on these investments are not immediately taxed, so long as they remain in the RESP. When the funds are eventually withdrawn to be used for the child’s education, they are then included in the child’s income, which, typically being lower than yours, will face lower taxation. There is a time limit: an RESP must be drawn down and closed within 35 years of its opening.
To make the best effort at attaining a respectable return and protecting these funds for future use, you will want to take sensible levels of risk.
If need be, you can even make withdrawals from the funds before they are used by your child or grandchild. The original capital can be withdrawn directly, although unused grants must be returned to the government. The growth of any unused money can be contributed back to your own RRSP, if you have sufficient RRSP room.
This is a simple and brief overview of the RESP. There are several ways these plans can be used to suit your specific needs. Want to learn more, or start building now? Just reach out.