Saving for your children’s education
It’s easy to picture your children with a diploma in hand, ready to begin their career. Thanks to the registered education savings plan (RESP), you can help your children spread their wings.
What is an RESP for?
An RESP is a very advantageous way to save money with a view to funding your children’s postsecondary education. The money that accumulates in an RESP can be used to cover tuition fees and all the other financial outlays that come with higher education, such as lodging, school supplies, food and transportation.
Like a registered retirement savings plan (RRSP), the money grows in a tax shelter until it is withdrawn to cover education-related costs.
Who can open an RESP?
Parents, grandparents, godparents, uncles, aunts and friends... anyone can open an RESP for a child, and a child can be the beneficiary of multiple RESPs.
If a number of you are contributing money for a single child, you’ll need to make sure you stay within the governmental contribution limits to avoid any tax penalties, since the maximum contributions are determined per child.
Who can be named as the beneficiary of an RESP?
You can designate any child you wish and you don’t have to be related to that child.
You also have the option to change beneficiaries once the plan is in force. Contributions can then continue to be made up to the end of the plan term determined according to the age of the new beneficiary.
How much money can you save?
The maximum lifetime contribution is set at $50,000 per child and there are no annual contribution limits. This means you can tailor your contributions as your budget allows, provided you stay within the lifetime maximum permitted per child.
How to use generous government grants to boost your savings
The federal government has created the Canada Education Savings Grant (CESG) to encourage parents to invest as early as possible in their children’s postsecondary education.
The CESG at a glance
- Annual grant: 20% of annual contributions
- Annual limit: $500
- Lifetime maximum per child: $7,200
Some provinces offer their own grant programs in addition to the CESG.
The federal and provincial grants are paid directly into the RESP and grow along with your own contributions. These little extras can provide a big boost to your savings.
What happens if if my child doesn’t go on to pursue postsecondary education?
If your child decides not to pursue postsecondary studies, you may:
- Designate a new beneficiary
- Withdraw the money
- Transfer the money into your RRSP
- Make a donation to an educational institution
You can also use our education savings calculator to calculate the amount of government grants you’ll be entitled to.
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Whatever product you’re interested in, the following tools will give you an idea of how much to invest, which you can then discuss with your advisor.