After rising at an annual average of 3.3% since 2005, post-secondary tuition costs across Canada went up an additional 1.7% for the 2020/2021 school year. Today, students enrolled in undergraduate programs can expect to pay an average of $26,320 for a four-year education—and that’s for tuition alone. Add in food, rent, transportation and other expenses, and a four-year undergraduate degree can top $120,000. That’s the bad news. The good news is that you can start saving now for a child’s education with a Registered Education Savings Plan (RESP).
In 1998 the government of Canada introduced RESPs for families and individuals. Allied Financial has been promoting Family RESPs since inception.
In hindsight I wish I had taken pictures of all our young RESP beneficiaries … quick math says 2021 – 1998 means our first RESP beneficiaries would be at least 23 years old! What a great experience it has been for me to have watched all these young children grow up to be young adults and pursue their dreams and goals.
It has been humbling for me and I enjoy hearing the stories of their first years of post-secondary education
Similar to Registered Retirement Savings Plans (RRSPs), investments inside an RESP—including capital gains and dividends—are sheltered from tax until funds are withdrawn. Even then, withdrawals used for approved educational expenses are included in the student’s income and taxed at their marginal tax rate, which is typically low.
Under the Canada Education Savings Grant (CESG), the government matches 20% of your annual RESP contributions to a maximum of $500 per year per child, up to a lifetime maximum of $7,200 per child.
The Canada Learning Bond (CLB) is an additional grant available to low and middle-income families. Eligibility depends on the number of children in the family and adjusted family net income. Personal contributions to your RESP are not required to receive the CLB. Each eligible child receives $500 in the first year of eligibility plus $100 for each subsequent year of eligibility to a maximum of $2,000. An eligible child must be born in 2004 or later.
In an individual plan, which is set up for only one child, you can continue contributing for 31 years after the plan is set up. In a family plan, which can benefit all your related children, contributions can continue until the beneficiaries turn 31 or for 31 years after setup, whichever is earlier. Either way, you’re allowed to contribute a lifetime maximum of $50,000 per child, although only $2,500 per year is eligible for the CESG. You can generally continue receiving CESG until your beneficiaries turn 17.
If your child decides not to pursue a post-secondary education, you have several options. If you set up a family plan, which we recommend, you can transfer the funds to another child. Conversely, you can pay back the CESG and transfer up to $50,000 to your RRSP without penalty (if there’s contribution room). Or, you can give it some time. RESPs can stay open for 36 years after the plan is set up - plenty of time for your children to change their mind.
RESP Family Plans are a great way to ensure your children have an opportunity and the financial freedom to obtain their educational goals. The sooner you start the more you will accumulate and be able to reward your children with a good educational financial foundation that does not break the bank and has been partially funded through the Canadian Government.
As always, our commitment is to provide you with common sense advice and personal financial strategies. Increasing your financial understanding is part of our service.
We are happy to discuss your RESP goals and how we can develop a strategy for your children or grandchildren. There are lots of questions and we are always here to answer them. Should you have any, please feel free to call me directly at 1-866-241-1686 x 1
All the best
Here is a links to additional information on RESPs from the Canadian Government:https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/choose-plan.html