These days getting a higher education is expensive. Depending on the program and school chosen, it can cost anywhere from $2,500 to over $10,000 annually for tuition alone. Luckily, you have access to a powerful savings tool to help your kids get ahead without hefty student debt – the Registered Education Savings Plan (RESP).

What is an RESP and how does it work?  

The RESP is a tax-advantaged account designed to help you save up to $50,000 for your child’s post-secondary education. Here are the key facts you need  to know: 

• Education opportunities — You don’t have to go to a Canadian university to qualify. Savings can be used for international education, trade schools, apprenticeship programs, colleges and more. 
• Free money — Both the federal and provincial governments offer valuable grants to help boost your savings. 
• Tax benefits — Grants and savings interest are taxed to your child, but only when they withdraw the money for school, at which point they’ll likely have low income and pay little to no tax.
• Contribution flexibility — Parents aren’t the only ones who can contribute. Grandparents, aunts, uncles and even friends can add to your savings. 
• Investment options ­­— You can use savings accounts, mutual funds, term deposits and more to grow your RESP savings.

What RESP grants are available? 

There are several government grants you can take advantage of to grow your RESP: 

• Canada Education Savings Grant (CESG) — Up to $7,200
  The CESG matches 20% of RESP contributions up to a maximum of $500 a year and $7,200 total. That means, for every dollar you contribute, your child gets 20 extra cents towards their education savings.

• BC Training & Education Savings Grant (BCTESG) — $1,200
  The CESG matches 20% of RESP contributions up to a maximum of $500 a year and $7,200 total. That means, for every dollar you contribute, your child gets 20 extra cents towards their education savings.
• Canada Learning Bond (CLB) — Up to $2,000
  If your family qualifies as lower income, the CLB will deposit $500 into your child’s RESP in the first year of eligibility and $100 every year you qualify after that, up until your child turns 15.  

The only requirement with a plan like this is that each child must be under 21 when added and be related to you by either blood or adoption.

What if my child doesn’t go to school or there’s money left over?  

Not every child uses their RESP. Some don’t need post-secondary education to achieve their goals, others simply don’t spend their full savings. But that doesn’t mean the money goes to waste. While the grants will need to be returned to the government, there are several things you can do with the remaining savings: 

• Contribute to your RRSP — If you have room in your RRSP, you can transfer up to $50,000 from your RESP into it tax-free so long as your child is over 21 and the plan has been open at least 10 years. 
• Replace the beneficiary — If there’s another child you want to support, you can transfer the RESP to them. How you do this depends on the type of plan you have (individual, family or group) and does come with rules, so it’s best to chat with an expert to ensure you do it right.
• Close the RESP — This option has some tax drawbacks. Although your contributions can be withdrawn tax-free, the interest earned on them will be taxed at your current rate plus a 20% penalty. Once again, it also requires your child to be over 21 and the plan to have been open at least 10 years. 

But you don’t have to rush to make any decisions. The RESP can stay open for up to 36 years, giving your child plenty of time to explore opportunities.
 

If you have kids, contributing to an RESP is well worth the effort. A great way to save for your child’s future, it ensures they can fly the nest with confidence, no student debt and free government money in their pocket. 

Need a hand getting started? Our experts will help you every step of the way, from opening an account to managing the investments it holds.