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What to think about when opening an RESP account

* This article is sponsored by Embark Student Corp.

One of the greatest gifts parents can give a child is a head start on life by paying for – or contributing to – a post-secondary education…but that’s no easy feat. Tuition costs are steadily climbing. According to Statistics Canada, undergraduate fees rose by 2.6% last year alone, with the average undergrad tuition coming in at $6,834 per year. Not to mention textbooks, extracurriculars and the rising cost of living. In some cases, your child’s education could cost over $95,000.

Ask any financial advisor how to afford your children’s post-secondary education and they’ll tell you: Start saving early and, above all else, open an RESP. Since 92% of parents believe that their child’s education is important, opening an RESP account seems like a no-brainer, but choosing an RESP plan and a provider is a big decision with lots of information to consider. Let’s start with the basics.


How does an RESP work? 

An RESP (registered education savings plan) is a savings account available to every Canadian with a valid SIN to help save for a child’s post-secondary education. RESP savings – up to a lifetime contribution limit of $50,000 per beneficiary – grow tax-free with additional funding from the government.

What are the benefits of an RESP?

  • They grow. Automatic contributions take the stress out of saving, while investment opportunities – stocks, bonds and ETFs – can help your money grow. In all, you can contribute up to $50,000 to an RESP per child and see your savings grow even higher with grants and investment gains.
  • The government offers incentives. The government matches 20% of every qualified dollar you contribute to your RESP savings, giving you an extra $500 per year per child. Plus, some families may be eligible for additional RESP grants, a.k.a. free government money! 
  • They’re (nearly) tax-free. RESP account withdrawals are taxed at your child’s bracket, meaning the taxes are typically low to non-existent when withdrawn strategically. 
  • They’re versatile. The funds can be used for more than just tuition. Think: course materials, housing, other living expenses and more. 
  • They’re flexible. RESP accounts can stay open for 35 years, meaning that your child’s post-secondary education can be deferred or split up. One child doesn’t need their entire allotment? Share it with another child in your family plan. And if they don’t pursue post-secondary education altogether? No problem. There are several options to transfer or withdraw without penalty.
  • It’s never too early – or too late – to start an RESP. Use this handy RESP calculator to calculate the monthly contribution amount needed to reach your goals by your child’s graduation.


Which RESP provider is right for me?

To find an RESP provider – whether a financial institution, an investment advisor or a scholarship fund – that suits your needs, consider key factors such as:

  • Reputation (what’s their experience and expertise?)
  • Support needed (type of plan, grant applications)
  • Fund transparency (risk vs. income potential of investments)
  • User experience (is information accessible?)
  • Fees (including management expense ratio) and payment structure
  • Investment strategy (do they use a glidepath approach that adjusts with your child’s age?)


Do I need a family or individual RESP?

  • Family RESPs are restricted in that they can only be opened by a close relative by blood or adoption (parent, sibling, grandparent, great-grandparent) and beneficiaries must be under the age of 21. Beyond that, they’re super flexible. When it comes to withdrawals, the RESP’s funds, including grants in some cases, are shared, but not necessarily equally. If one beneficiary is pursuing a pricier degree than the other, the allocations can be divided accordingly. Plus, beneficiaries can be added or changed throughout the plan’s 35-year timeline – so you can always adapt the plan to the needs of your growing family.
        • Who is this plan right for? Families with more than one child (or planning to have more children).
  • Individual RESPs can be opened by anyone – blood relation or not – for beneficiaries of any age, including over age 21. Under this plan, an adult can open a plan for themselves and save for their future.
        • Who is an individual plan right for? Single-child families, individuals opening RESP accounts for someone who isn’t their child, sibling or grandchild, and adults looking to invest in their own education.

Can you transfer and/or have multiple RESP accounts? You bet. As long as the transfer meets the RESP rules defined above, you can shift from individual to family RESPs at any time. There are no limits to the number of RESP accounts a beneficiary can have, but there are limits to how much they can save, both in terms of the RESP’s maximum contribution room and boosts from government grants.


Will my provider help me maximize RESP grants from the government?

When you open an RESP, you’ll be eligible for federal grants like the Canadian Education Savings Grant (CESG) and, for low-income families, the Canada Learning Bond (CLB). Under the CESG, the federal government matches 20% of your investment to a maximum of $500 per year. If you don’t contribute enough to earn the maximum one year, the earning potential will carry over until the next year, until you’ve received a maximum of $7,200 (or the year your child turns 17 comes and goes). The CLB, which has a lifetime maximum of $2,000, is reserved for low-income families and requires no RESP contributions at all. Simply starting your RESP is enough. (Note that residents of Quebec and British Columbia are eligible for additional provincial grants.) Some providers may automatically apply for these grants on your behalf, but it’s important to ask and work together to maximize what you get from the government, which typically comes down to you maximizing your own contributions.

How do I select an RESP account that suits my saving style?

Easy. Find an RESP provider, like Embark, that does the calculations for you based on the beneficiary’s age, graduation date and, of course, what you can afford. Embark also acts as your RESP investment manager, so you can literally set it and forget it. Once you decide how much you can contribute, Embark does the rest, automatically withdrawing and strategically investing your funds to help maximize their earning potential. Embark employs a glidepath approach, meaning they adjust the investments as your RESP nears its target withdrawal date, shifting from equity stocks (which have more earning potential – and more risk) to a capital preservation fund (a conservative strategy that aims at preserving rather than earning money).

In short, RESPs are a smart way to save for your child’s (increasingly expensive!) education – and the earlier you start, the better. Even modest monthly payments can have a big payoff, with government grants and investment earnings adding to the total payout. And watching your kid walk across the graduation stage in their cap and gown with minimal (or no) student loans? That’s the biggest payoff you could ask for. 


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