RESPs: 5 tips to help you save for your child’s education

With rising tuition costs and growing student debt, post-secondary students are increasingly relying on their parents for financial support. We recently interviewed 10 grads, asking them about finances while in school, and most said they received some type of financial support from their parents. With this trend in mind, it’s important to prepare for your child’s post-secondary education as early as possible.

An RESP is one of the best ways to help you save for your child’s education.

What is an RESP?

An RESP (Registered Education Savings Plan) is a type of savings account commonly used by parents to save for their child’s education. RESPs are enrolled to receive the Canadian Education Savings Grant (CESG). The CESG adds a guaranteed 20% return to the account on your child’s behalf, meaning you actually earn money by saving money. The 20% return is based on eligible contributions up to a maximum of $500 a year on a $2,500 contribution.

Additionally, an RESP is a tax-sheltered investment as long as it remains invested in the plan. Money withdrawn for a child’s post-secondary program will be taxed, however your child will not likely owe taxes on the earnings due to their status as a student.

Using an RESP

The money earned in an RESP can be used to help pay for a variety of post-secondary programs, including full-time and part-time university and college studies, apprenticeship programs and trade schools. It can also be used to pay for school-related expenses like textbooks, rent and other living costs.

Now that you know what an RESP is and the benefits they offer, here are our tips for investing your money and growing your child’s education savings fund:

1. Invest your child tax benefit

If you want to max out your contribution without making a dent in your budget try to invest all or some of your child-tax benefit into an RESP. It’s a great way to re-invest that money into your child’s future.

Want to budget ahead of time? The government of Canada has a free child and family benefits calculator on their website that helps you estimate how much money you’ll receive from the child tax benefit.

2. Encourage your child to contribute money from a part-time job

Once your child has a part-time job, they’re likely old enough to start thinking about their post-secondary plans. If you and your child have already talked about putting aside some of their paycheque for school savings, give them the option to contribute to their RESP (if you’re not already maxing out the contribution).

If your child hasn’t expressed any interest in saving, it’s always a good idea to teach them the value of money management. A first job or summer job is a great way to start this conversation.

3. Inheritance? Tax refunds? Contribute extra money into an RESP

While the best way to take advantage of an RESP is to maximize your contribution, not everyone can afford to invest $2,500 per child each year. Luckily, unused contributions carry forward to future years so you can still take full advantage of grant money. If you receive a large lump sum of money like an inheritance or tax refund, consider investing it into an RESP, especially if you have contribution room from previous years.

4. Empty the RESP before your child finishes school

You should budget enough money to get your child to the end of their program. Don’t withdraw all the money at once, but make sure to empty the account completely before they graduate– they’ll likely pay tax if they withdraw money when they’re working and earning a higher income.

5. Transfer an unused RESP to a different child

In some cases, you may be able to transfer an RESP to a different child. This is beneficial if one of your children chooses not to pursue post-secondary or doesn’t finish their program, since the CESG is forfeited in these instances.

Luckily, there are certain situations where you’re allowed to transfer an RESP – it’s a good idea to speak with your financial institution if you’d like to explore this option.

Saving for your child’s education is one of the ways you can prepare them for post-secondary and help ease the burden of student debt. However, it’s also important to teach them how to manage their finances in school. Need help starting the conversation? We spoke with recent grads and compiled their top tips for managing money as a student.