Making the most of your RESP: the hacks you need to know
Help set your child up for educational success by implementing these simple strategies.
Carissa LucrezianoAug. 16, 2021
4-minute read
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Whether your child’s path includes university, college, trade school or apprenticeship, financial planning is crucial to help set them on the right course. One of the best ways you can financially support your child’s education is by establishing a registered education savings plan (RESP). Whether you’re familiar with RESPs or new to the concept, you may be wondering how to get the most out of them. In this article, we’ll show you how to help set your child up for educational success.
Quick facts about the RESP
RESPs can be set up for an individual, or as a family plan if you have two or more children pursuing post-secondary education.
There's a lifetime contribution limit of $50,000 per child across all RESPs and there's no annual contribution limit.
RESP funds can be put towards education costs, including tuition, books and living expenses.
To help your RESP savings grow faster, the federal government and some provincial governments provide grants and incentives. The Canada Education Savings Grant (CESG) is the main incentive and offers up to $500 annually before your child turns 18, with a lifetime maximum of $7,200 per child.
Your investments are tax-deferred while in the RESP, and when the grants and income are withdrawn for educational assistance payments, they're taxed in the child’s hands, who may pay little or no tax on them.
Hack #1: Set up a regular investment plan
Set it and forget it. Automate your contributions into the RESP by setting up a regular investment plan (RIP). This also allows your savings to start growing immediately.
Hack #2: Consider varying your savings vehicles
Your range of education savings options include RESPs, tax-free savings accounts (TFSAs) and non-registered savings. Each plan type has advantages and limitations, so your approach should complement your family’s goals and financial situation.
RESPs are most often chosen because they’re eligible for incentives from the Canadian government and some provincial grants; however, they have that lifetime maximum of $50,000 per child. If your child’s education plan costs look like they may exceed that, you might want to prepare additional savings outside of the RESP. Here are some options:
Use a non-registered account. This gives you maximum control and flexibility, with no limits on contributions or how the funds are used. But, unlike RESPs, investment income earned is taxed in the year it’s realized and there are no grants available.
Use a TFSA. Earnings and withdrawals from a TFSA are normally tax-free, but government grants aren't available and you must adhere to the TFSA contribution limits.
The best combination of options depends on your child’s age, how long you’re saving for and your financial means. Work with your advisor for help determining the best strategy for your unique situation.
Hack #3: Maximize the government grants
By investing $2,500 annually — that’s just $209 a month — into a RESP for at least 15 years, you can receive the maximum CESG of $500 annually before your child turns 18, with a lifetime maximum of $7,200 per child.
An example of RESP growth over time
Debra is a hypothetical client, age 36, and had a daughter in 2021 named Alice.
Debra promptly set up an RESP the year Alice was born and set automatic regular contributions of $209 per month to fund it. She continued funding the RESP in this way until Alice was old enough to attend post-secondary school.
By the time Alice is ready to go to post-secondary school in the year 2038, the RESP savings total $82,8251.
You can find out more about the benefits of government grants and how to grow your savings with our RESP calculator.
Hack #4: Revisit and adjust your RESP investment strategy over time
The best mix of investments for your RESP varies depending on the age of your child. For example, if your child is older and you’re withdrawing funds in the near future, then you might want to explore investments that preserve capital. If your child is much younger and you have time to ride the waves of potential market volatility, then you may be suited to higher-risk, growth-oriented investments. It’s a good idea to work with your advisor as your child gets older to evaluate and adjust your investment strategy.
Hack #5: Top up your contributions if there's room
If you have excess cash sitting on the sidelines, you may want to top up your contributions if you have contribution room and haven’t yet maximized the government grants. You can also use milestones like birthdays and holidays to top up contributions by asking loved ones to contribute to your RESP rather than give traditional gifts.
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