Many people today, whether they have RESPs for their children or not, don’t completely understand what they are and how they work.  When I became a mother, one of the foremost things on my mind was saving for my child’s post-secondary education.  My parents had set up an RESP for me and my brothers and I intended to do the same for my children.  Trying to make sense of them, however, wasn’t easy.  Here are some facts about RESPs to help you understand them.

What exactly is an RESP?

Very simply, a Registered Education Savings Plan (RESP) is an investment vehicle that is registered by the Federal Government through Canada Revenue Agency.  It allows parents, grandparents, friends and other relatives (called the subscribers) to save for a beneficiary’s post-secondary education.

How much will it cost for my children to pursue post-secondary education?

Based on Statistics Canada figures, the annual increase from 1995/96 to 2006/07 in total tuition costs was 5.69%.  If the total tuition costs continue to increase at the same rate, a four-year university program will cost $95,768 in 2030 (the year someone born in 2012 turns 18).  Accommodation is extra and is expected to increase at about 4.3% per year.

Should I open an RESP or a TFSA?

There are advantages to both RESPs and TFSAs.  However, which one is right for you depends on your situation.  Generally speaking, if you are saving for your child’s or grandchild’s education, you will see more benefits when you contribute to an RESP.  This is because the federal government offers grants on qualifying contributions to RESPs.  (TFSAs are great for other savings goals such as emergencies and retirement, let me know if you’d like more information on them).

What government grants is my family eligible for?

• The Canada Education Savings Grant (CESG) up to a lifetime maximum of $7200 per child.
• The Canada Learning Bond of up to $2000 per child for qualifying families.
• The Additional CESG of 10-20% on the first $500 you contribute per child per year for qualifying families.

How much can I contribute?

Up to $50,000 in contributions can be made towards a child’s RESP (before grants & income).  Over time, your RESP should generate income that will be available the day your child is ready to start his or her post-secondary education.

The story is in the numbers

More than ever, a post-secondary education is critical to your child’s future success.  But at the same time, the cost of education is dramatically on the rise.  If you want to ensure your children have the opportunity to attend post-secondary education, contact me to discuss RESPs for your kids.  Their future depends on it.

– Adriann Locke, Education Savings Consultant and Financial Advisor