An RESP for your child is a great way to set them up for college or university
Author: Srivindhya Kolluru Contributing Columnist
Source: The Toronto Star
Pencils, notebooks and erasers is the focus of back-to-school for the little ones.
When it comes to post-secondary education, however, family discussions quickly turn to money - and do we have enough to send our child to university or college?
And more than half of Canadians say they are willing to go into debt to pay for their child's higher education. A mix of strategies, however, can help students and parents balance saving for education with the current high cost of living.
According to Statistics Canada, undergraduate tuition fees averaged $7,076 for the 2023-24 academic year, a nine per cent hike from the 2019-20 academic year.
Room, board, books and meals can drive costs much higher.
One of the best tools for starting savings early and avoiding debt later is the Registered Education Savings Plan (RESP).
Canadians can hold a range of investments in their RESPs, such as mutual funds and ETF’s where any growth within the plan is tax deferred.
Eligible adults can open this type of savings account for their child, someone else's child, themselves, or another eligible adult through most financial institutions.
The federal government matches 20 per cent of your contributions, up to $500 per beneficiary per year, through the Canada Education Savings Grant.
Additional benefits exist for lower-income families, such as the Canada Learning Bond (CLB), in which the federal government contributes up to a lifetime maximum of $2,000 without requiring personal contributions. Some provinces also offer additional grants and bonds if your family income falls under a certain threshold.
Along with an individual RESP, there are also family plans for use by more than one beneficiary.
Group plans are sold through scholarship plan dealers, but these can come with high upfront fees and certain risks.
Because a Group RESP pools all plan members' contributions, rate comparison site Ratehub.ca warns that you might be required to stick to a specific contribution schedule and often are limited to fixed-income products, which may not align with your investment strategy for education savings.
Canadians can contribute up to a lifetime maximum of $50,000 to their RESP for each beneficiary. After that, you have several options. One is a TFSA, which allows you to contribute and withdraw funds tax-free. (The maximum TFSA dollar limit is $7,000 for 2024.) In contrast, your beneficiary, typically your child, must pay tax on funds withdrawn from an RESP. And contributions to a TFSA or RESP are not tax-deductible.
How much parents need to save up in RESP is circumstantial.
This article was written by Srivindhya Kolluru Contributing Columnist from The Toronto Star and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
