RESPs: 10 Things to Know!
We all know kids cost a lot of money (see here if you don’t believe me), and one of the biggest costs is education! Did you know that the average cost of post-secondary education for 2018 was $6800 per year and that’s just tuition! Add books and accommodations to that and it can be daunting! I checked in with Planswell; an online financial services company for some stats on the topic and they shared that 59% of parents don’t have a Registered Education Savings Plan (RESP) set up. The good news is my Instagram Poll results show that 75% of League of Moms followers have invested in RESPs (go you)! The really good news is those who don’t have them yet, you can actually do it from the comfort of your home now through a service like Planswell – no need to drag the baby to the bank!
For all parents, we’ve put together a list of 10 facts about RESPs that we think everyone can benefit from! If you already have RESPs you can probably skip to #6 below!
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10 Facts about RESPs:
1. It’s a tax-free savings account introduced by the government in the 1970s. That means any money made in your RESP is tax-free as long as it stays there. When the money comes out, yes taxes need to be paid on it, however, the taxes will be calculated on your child’s income level which will most likely be low or non-existent.
2. Anyone can open an RESP for a child (parent, grandparent, friend). Hello, gift ideas!
3. Each child can qualify for up to $7200 in government grants through the Canadian Education Savings Grant (CESG). The government will match 20% of the RESP contributions up to $500 each year. For those with a lower income level there are additional dollars available through CESG and there is also the Canadian Learning Bond, if you qualify, you don’t need to contribute any dollars, you just need to open an RESP account.
4. Your child is eligible for CESG until they are 15 years old, but to receive full benefit it is better to start earlier – you need to open an RESP when your child is no older than 10 if you want to collect the full $7,200 in grants.
5. The lifetime contribution to an RESP is $50,000 per child.
6. If your child decides not to get a post-secondary school education, your contributions are returned to you, but you would not receive the government grants (CESG). There are lots of options for using the grant beyond college & university, including trade schools, vocational and technical programs, religious schools, part-time studies and correspondence. See the list of eligible institutions here.
7. Your child has until they are 35 years old to use the RESP funds. That’s a long time!
8. There are different options for RESPs – group, family and individual (we’ll share more below).
9. You don’t have to contribute every year because you can catch up on your contributions. The government will match 20% of your RESP contribution for up to $1000 if you have unused room in your contributions. For example, when I was on maternity leave with my second, we paused contributions for our RESPs and Registered Retirement Savings Plan (RRSP) in order to manage our cash flow.
10. There are a wide range of investment options for RESPs. You can choose to manage the investments yourself or you can have an expert through a service like Planswell; an online service that is building FREE financial plans for all Canadians! From the comfort of your computer or phone, you can get a full financial plan that focuses on your goals (i.e. education, retirement) and helps you figure out exactly what you should be doing with your investments, insurance and mortgage. The best part is the fees are totally transparent and much lower compared to traditional banks or financial advisors.
Some things to think about….
Group Funds vs Individual vs Family
Group funds are managed by organizations that pool money together to invest and then payout in the year your child is attending school. Do your research as group funds have a bad rap! Many of them require high upfront fees, and you have to pay into them regularly. If you don’t pay into them regularly, there is a possibility you may be violating their policies which can forfeit some of the funds you have already put in. Google ‘group RESPs Canada’ and you’ll find a ton of articles on this topic. If you have already contributed to a group RESP then don’t panic, but chat with the team at Planswell as they can best advise of your options on the topic.
Individual RESPs are in one child’s name and Family RESPs are for multiple beneficiaries (ie children). There are some savings that come with a family RESPs in terms of fees and paperwork, but it’s best to get the advice of a financial advisor as to the best approach for your family. We have a family RESP for our two kids so that we can easily transfer funds between the two of them should one not decide on post-secondary education.
Should you invest dollars in an RRSP or RESP?
I reached out to the team at Planswell to answer this question. Their financial expert suggested that you shouldn’t put money into any funds until you are confident you won’t need that money until its intended purpose (i.e. education or retirement). They suggest you ensure you have an emergency fund first, at least three months of after-tax income. Once that is in place, think about your goals with respect to retirement and education. If you put all your eggs in the RESP basket, will you be okay for retirement? If you put all your eggs in the RRSP basket will your kids be able to attend post-secondary education? Keep those free government dollars (CESG) in mind, but remember there are also Ontario Student Assistance Program (OSAP) loans (for now) for students to take advantage of. The other important factor to be mindful of is that if your child decides not to pursue post-secondary education, you are able to transfer the funds in your RESP to your RRSP.
So the long and short of it! If you have kids, then an RESP should definitely be on your list! If you have any questions reach out to the financial experts at Planswell and they can provide more guidance.
Thank you to Planswell for sponsoring this blog post so we can continue to provide League of Moms as a free resource. All opinions expressed are our own. It’s important to note that we are not financial advisors, so we recommend you reach to the experts! If you want to keep up to date with Planswell and the services they provide, check them out on Facebook, Instagram & Twitter
League of Moms / 10/06/2019