The school year has come to a close, which means your kids are one step closer to graduation and potentially heading off to further their education—whether that’s university, career college, or vocational school. Helping with these costs can be a challenge, especially since tuition for Canadian universities ranges from $5,000 to $10,000 per year, adding up to $40,000 by graduation. And that’s before factoring in expenses like books, supplies, food, and housing.
The good news? There’s a no-risk education savings account that offers a 20% dividend on new deposits for the first year, with the same offer available annually for up to 14 years! You might be skeptical, but it’s true—it’s called a Registered Education Savings Plan (RESP).
Unlike a regular savings account, an RESP comes with government regulations on contributions and how your child can use the funds. However, it’s easy to set up, and the benefits are worth it. Here are some key points to know:
- Government Grants: You can contribute up to $2,500 annually to receive a 20% Canada Education Savings Grant (CESG), regardless of your income. Low-income families may qualify for additional grants. These grants are added to the RESP and can be invested along with your contributions. Some provinces also offer additional education savings programs that complement RESPs.
- Investment Options: Similar to RRSPs and TFSAs, you can invest the funds in a variety of ways, including stocks, ETFs, mutual funds, GICs, cash, and bonds. This flexibility allows your investment to grow over time, and you can adjust your strategy based on your risk tolerance and your children’s educational timelines.
- Wide Eligibility: Funds from an RESP aren’t limited to university; they can also cover college, technical training, correspondence courses, and even international programs.
- Grant Limits: The CESG is available only for children under 18, with a lifetime maximum of $7,200. It’s best to start contributing early to maximize benefits, but there are options to catch up if you begin later.
- Tax Benefits: While there are no tax deductions for contributions, your original contributions aren’t taxed when withdrawn. Any grant money and investment earnings are considered taxable income upon withdrawal, but students typically face a lower tax rate, minimizing the impact.
- Versatile Use: The funds can be used for a variety of educational expenses, including tuition, books, food, and transportation.
Navigating RESPs can be complex, especially if you have multiple children. A great starting point is the federal government’s RESP website for detailed information.
Understanding how the program works is crucial, but you’ll also need to figure out how to find that $2,500 per year (per child) to maximize grants. If you miss contributions, you can catch up later, but this may limit the growth of your investments. One convenient way to contribute is to use a portion of your monthly Canada Child Benefit payment—just $100 a month could yield $250 in CESG grants annually.
Investing in education is a smart financial decision, and an RESP is an excellent way to help cover those costs. The earlier you start, the better off you’ll be, easing your financial concerns with each passing school year.
