Please welcome Sunshine G to Cents, Sense & Sensibility. She is the newest writer to the CSS team and she is well-versed in all things life and money. She will join us once a week to share her insights on family, money, and career.
Everyone wants what’s best for their kids…and we all have the best of intentions, but sometimes life (and lack of sleep, grocery shopping and just getting to work on time) gets in the way. Saving for your children’s education often falls into the ‘we’ll get to it’ category.
Enter the RESP…the foolproof, hassle-free way to save for your kids’ education. Fill out the rafts of paperwork once and it’s DONE DONE DONE. I see it much like making a will – put the hour in at the beginning and then your butt is covered on an ongoing basis.
What is an RESP and why do I want one?
The basic premise is of the ‘pay yourself first’ variety. You set up an RESP with a given amount per month, and then the government ponies up. There are a variety of providers you can use. For the most part, any accredited financial institution will have an RESP option. The most hassle-free way to do it is often with whoever you do your regular banking with.
After high school, your child can withdraw the money to help pay for full-time or part-time studies in pretty much anything you can think of – apprenticeship programs, trade school, college or university. Note, though, that if they don’t attend school, the grant money will have to be repaid, but the funds that you put in will still be available.
There’s time for a fickle teenager to change their mind, though – RESP accounts stay open for up to 36 years, after which the money is returned to you, as is the interest – though taxed, naturally.
So where does the free money part come in?
Firstly, there’s the Canada Education Savings Grant. You care about this because it’s FREE MONEY from the government – and that, my friends, is a rare beast that lives alongside the Kraken and the unicorn. Essentially, the government matches the money you put in at 20%, up to $500/year per beneficiary. In most cases, your RESP provider will apply for it on your behalf. Your beneficiary must have a social insurance number and be under the age of 18.
As of 2007, there is no annual contribution limit, though there is a lifetime contribution limit of $50,000 per account. You then invest the money as you see fit, whether in GICs, mutual funds or a high interest savings account and the funds grow tax-free until they are used for education.
But wait, there’s more
If you fall within a lower income bracket and receive the National Child Benefit Supplement and your child was born after 2003, you may be eligible for the Canada Learning Bond, which is an even better deal. The government deposits a one-time grant of $500 into the child’s RESP account when it’s opened, and then they add an additional $100 per year until they turn 15 to assist you in saving.
If you have more than one child, what works best is often a family (or group) RESP. This allows you to name some or all of the children as beneficiaries and you can add and subtract beneficiaries at any time. The benefit of this is that if one child decides not to attend school after graduation, the other one can make use of the cash.
Happy saving, my friends – let’s raise those future geotechnical engineers right!
Photo Credit Free Images/Ratnesh Bott