Education Savings Plans (RESPs) and how to make them work for you
What is an RESP?
Education Savings Plans, or RESPs as they're commonly known, are a great tool for maximizing your return. The RESP program has been around forever, but in 1998 the government made some changes to it to make it very attractive to parents and grandparents of kids and grandkids.
What the government did was they started to give you a match of 20% in the form of a grant for every dollar you put into the account. The maximum you can put in per calendar year for a child is $2500, in which the government will give you $500. If you've missed some years you can actually go back and catch up on some previous room.
To me the 20% grant itself is absolutely amazing. This is a great opportunity to help us put away money for our children's future education.
What else is interesting is that the company you decide to use for the Education Savings Plan, will keep track of every dollar in the account. They are able to track and report on the following three components.
- The original money you put in, or the capital.
- The grant that you receive from the government.
- The income and growth on the account over time.
How can I access funds in the RESP account?
What is nice is that as long as the kids go to a post-secondary institution, they can start to draw this money out and have access to it right away. The big rule on taking money out, is that for the very first semester, it's capped at $5,000 of grant and income. After that, you could liquidate the entire account, within reason.
To get the money out of the RESP is really easy. You will need:
- a letter from the institution;
- a signed redemption form.
With these two things your provider can get that money back to you.
Beyond the basics - a look at taxation
What I love about this program is that there's money from the government to help pay for the kid's education, but there's also an income-splitting opportunity you can look at, which allows that future tax liability of the grant and income to be taxed in the student's name, not in yours.
There are a few different ways that you can set this up:
- A pooled plan which is available through a variety of different providers, you can set up
- A family plan
- An individual plan
How to get started
I would suggest talking to your trusted advisor and see which RESP plan makes the most sense for you and your family. Considerations might include your income, how many years you have to save, how many dependents you have and what other vehicles for saving you have in place.
One thing is for certain, the cost of post-secondary education is not going down. In fact, the cost continues to go up!
With 24 years of experience doing this type of work for clients, I have never had anybody complain they save too much money.
Our advice is to get started and try to maximize the number of grant dollars that you can get from the federal government, and provide as much money for your kids education as you feel comfortable with.
If you're looking for more information on RESPs and how to best leverage this savings tool, please reach out to us to arrange a call. Jamie is always happy to help and can meet with you to get you on the right track!
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Jamie Powell is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.