Back-to-school season is a natural reminder that education comes with a cost.
Whether your child or grandchild is still years away from post-secondary school or getting close to graduation, an RESP (Registered Education Savings Plan) can be an important part of preparing for those future expenses.
But simply having an RESP is not always enough. It is worth reviewing how the plan is being used and whether you are taking full advantage of the opportunities available.
1. Are you contributing enough to receive the available government grant?
One of the biggest advantages of an RESP is the Canada Education Savings Grant (CESG).
The federal government generally contributes 20% on the first $2,500 contributed each year, which can mean up to $500 in basic CESG per child per year. If there is unused grant room from previous years, families may be able to catch up and receive as much as $1,000 of basic CESG in a year.
Over time, the lifetime CESG maximum is $7,200 per beneficiary.
If RESP contributions have been inconsistent, it may be worth reviewing whether unused grant room is still available.
2. Is the RESP investment strategy appropriate for the child’s age?
An RESP for a three-year-old may be invested very differently from an RESP for a 16-year-old.
When post-secondary education is still many years away, there may be more time to ride out normal market fluctuations. As the child gets closer to needing the money, preserving those education savings can become increasingly important.
The investment strategy inside the RESP should evolve as the timeline changes.
3. Are parents & grandparents coordinating contributions?
Parents are not the only ones who can help fund an RESP. Grandparents, relatives, and others can also contribute.
However, there is a $50,000 lifetime RESP contribution limit per beneficiary across all RESPs, so families should communicate if more than one person is contributing.
Coordinating contributions can also help make sure available grants are being used efficiently without accidentally overcontributing.
4. Do you know how withdrawals will work when school begins?
RESP planning does not stop once the money has been saved.
When the beneficiary attends an eligible post-secondary program, funds can be used for more than tuition. RESP educational payments may help with reasonable education-related costs such as books, supplies, transportation, and rent, depending on the plan and circumstances.
It can also be helpful to plan the timing of withdrawals because different portions of RESP withdrawals are treated differently for tax purposes.
Understanding those details before the first tuition bill arrives can make the transition much smoother.
5. Has anything changed since you opened the RESP?
Financial plans should change as life changes.
Maybe your income has increased. Perhaps grandparents now want to contribute. Maybe the child is considering a different education path, or the family has additional children to plan for.
An RESP that was set up years ago may still be doing exactly what it should, but it is worth checking.
A little planning today can make a meaningful difference later
Post-secondary education can be a significant financial commitment, but families do not have to prepare for it all at once.
Regular contributions, available government grants, an appropriate investment strategy, and periodic reviews can all help build a stronger education savings plan over time.
At Newton Financial, we can help parents & grandparents review their RESP strategy, understand their options, and make sure education savings continue to fit within their broader financial plan.
If it has been a while since you reviewed your RESP, back-to-school season may be a good time to start the conversation.
