Why You Should Open an RESP for your Child

Posted 14 Sep 2016 by Rick Irwin, CFP, CLU

Just like you save for your retirement, your child (or grandchild’s) education should be a savings priority, if you don’t want the ever-increasing costs to fall on them when they graduate high school. An RESP is usually one of the best tools to save for their education, and take advantage of government grants in the process.

In an increasingly knowledge-based economy, post-secondary education is becoming even more important. At the same time, rising tuition costs are making this less and less affordable, making early education savings planning crucial. The most common savings vehicle for post-secondary education is the Registered Education Savings Plan (RESP).

The popularity of RESPs as the preferred education savings vehicle lies with the government grants paid into the program to partially match family contributions. The federal government adds to your RESP savings each year through the Canada Education Savings Grant (CESG, see page 8). Lower-income families may also qualify for the Canada Learning Bond. If you live in Quebec, Alberta or Saskatchewan, you may also be eligible for a provincial grant. Contributions are made with after tax dollars and the investments grow on a tax deferred basis until funds are taken out for school, at which point the gains from the plan are taxable to the student who, most likely, will actually pay little to no tax (of course dependent on their other income). A major benefit of the plan is that the funds don’t have to be used directly for college or university tuition, but you do have to provide proof of full time enrollment to be able to take funds out without repayment of CESGs.