Registered Education Savings Plan for Your Children

Robert E. Flux
Insights
| 5/4/2020

If you value education and feel it is important to help your children with education costs, whether you have the financial means or not, read on to learn about how small contributions today, and even none at all, can help your child with this future cost.

Registered Education Savings Plan (“RESP”)

An RESP allows you to make contributions to a tax-deferred savings plan, much like an RRSP, for education saving for your children. The difference is the government provides grants to the extent you make contributions, which is basically free money! The grant is based on your contribution and family income. A higher grant is available for families with lower income. All your contributions and the government grants grow tax-free until the day your child needs the funds for education. When your child uses the funds, your child pays tax (not you) on the income earned and grant income that is withdrawn. The original capital contributed comes out tax-free. The benefit of taxing the income and grants in the child’s hands is they probably won’t have any tax to pay on this, the assumption being they shouldn’t have a lot of income being a student, plus they’ll have tuition tax credits available.

Summarized below are a few examples of how much money you can accumulate in these plans with a small amount of money each month on the assumption you start as soon as your child is born. There are all sorts of calculators online to help you determine your future accumulation of funds based on your situation and how much you can save, so please take the time to check it out, and work with your accountant / financial advisor to see what you can afford. Your kids' will thank you for it, and what a great way to encourage your child to move out from under your roof when they turn 18!

Example 1

$50/month or $600 per year contributed – Family income under $43,561 – 3% return on investment

Each year you contribute $600 the grant received will be $220. You would have almost $20,000 saved by the time your child turns 18.

Example 2

$100/month or $1,200 per year contributed – Family income between $43,561 & $87,123 – 3% return on investment

Each year you contribute $1,200 the grant received will be $290. You would have almost $36,000 saved by the time your child turns 18.

Example 3

$208.33/month or $2,500 per year contributed – Family income over $87,123 – 3% return on investment

This would get you the maximum grant allowable of $7,200 by the time your child turns 15, and at this point, you’d have almost $56,000 saved. With 3% return on that figure and no more contributions, the $56,000 would grow to almost $61,000 by the time your child reached age 18.

Can’t afford anything? There is still free money available!

BC Training and Education Savings Grant

For children born after 2006, even if you can’t afford anything, by simply opening an RESP for your child before they turn 7 years old, the BC government will contribute $1,200 into your child’s RESP account!

Canada Learning Bond

For families that are entitled to the National Child Benefit Supplement (aka “family allowance” or “baby bonus”) which gets paid with your Child Tax Benefit monthly payments, all you have to do is open an RESP and for children born after 2003 you are entitled to $500 immediately, plus $100 for each year you are entitled to the NCBS up to age 15, plus $25 to cover the cost of opening an RESP. That’s $2,025 free!

Finding RESP's confusing?

Go to your bank and talk to a financial advisor for free. They can help you get an account opened, set you up on a monthly payment plan (and determine how much you can afford if any), and get all the free money that your child is entitled to. They can also help you with investment choices, which can be as simple and risk-free as putting the money in guaranteed investment certificates.

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RFlux
Robert E. Flux
Partner, Incorporated