10 Jun The ABCs of RESPs

Post secondary education in Canada has always been was pretty inexpensive compared to our neighbours south of the border. Historically, the provincial governments across Canada subsidized schooling to such an extent that there wasn’t much need for our parents to worry about college tuition from the time we were babies. Fast forward 20-30 years and things have changed – big time.

According to one annual Guide to Education Costs in Canada, for a child born in 2014, the first year of university could cost as much as $29,620 – that’s about $120,000 for a four-year program[1].

Post-secondary education is now an expensive proposition, and there is every indication that the costs will only continue to increase – whether protesting Quebec students like it or not.

So what can you do to make sure that your kids aren’t stuck with massive debt after university? You can open a Registered Education Savings Plan (RESP) for them. An RESP is a government-registered savings vehicle for education. Just like with an RRSP, any income earned in an RESP is tax exempt until it is withdrawn – allowing your money to stay in the plan and compound over time. This is why many parents start saving as early as possible – many plans are started as soon as the baby is born.

Some facts about RESPs in Quebec:

• Grants: the government matches 30% on the first $2500/yr that is saved in a  child’s RESP, (20% federal 10% provincial) up to a maximum of $10,800.
• Deposits are subject to a lifetime maximum of $50,000.00
• Savings compound tax free within the RESP plan – so the more you save and the earlier you start, the more compounded interest you will benefit from.
• Upon maturity (which usually occurs when the child reaches age 18) contributions, less fees, are returned to the contributor tax-free. (Deposits are made using after-tax dollars).
• Upon maturity the child can use RESP income, known as an Education Assistance Payment, for any eligible post secondary studies anywhere in the world

Who can open a plan?

• Parents and grandparents are the most common contributors, but any Canadian permanent resident can open a plan for a child living in Canada – family and friends alike.

What are the different kinds of RESPs and who offers them?

• There are individual/family plans and there are group plans. Individual/family plans are offered by most banks and financial advisors. Group plans are sold exclusively by a handful of companies who specialize just in RESPs.
• Both types of plans are eligible to collect the government grants. Generally speaking, individual plans offer more flexibility, while Group plans offer higher potential payouts. It’s important to do your research – make sure that the plan you are starting is a good fit for you and your family.

How do I get started?

• In order to register the plan as an RESP, the child needs to have a SIN. If your child does not have one yet you can apply in person at any Service Canada office. They will give you the number on the spot and mail you the card a few weeks later.
• If you have a good relationship with your bank or your financial advisor – ask them what they have to offer and how their RESP plans work.
• Make an appointment to hear about the Group Plans – most reps will come meet you in your home or office at a time that is convenient for you. They offer unique benefits that can add to your savings and provide potentially higher payments to your child.
• Let the grandparents know! Instead of an 18^th stuffed animal or toy that will be lost in the basement in a week, ask Grandparents to consider contributing into your child’s RESP for celebrations like birthdays and holidays.

Saving for your child’s future in an RESP is a big decision. RESPs are subject to many rules and regulations. Make sure that you are well informed before making your decision. Most importantly – don’t put it off! Start up a plan as soon as you can. Your 50 year-old-self will thank you one day.

-Rebecca Sohmer Bergman

Rebecca (Sohmer) Bergman has been a licensed Group RESP sales representative for 10 years. She is currently a Scholarship Plan Representative and Sales Manager with Knowledge First Financial – one of Canada’s oldest and largest Group RESP providers. She can be reached at 514-835-8895 or Rebecca.sohmer@kff-pfs.ca

[1] Your 2013 Guide to Education costs in Canada, Knowledge First Financial Inc.