Reducing risk in an RESP: How to invest as your kid approaches college or university + MORE Feb 12th

If you’ve opened a registered education savings plan (RESP) for your child or grandchild, congratulations. You’ve taken the first step towards financing their future college, university or trade school education. And now your family can start benefiting from generous government grants worth thousands of dollars. What you might not yet have figured out, though, is what assets to hold in the RESP—and how your investment mix should change as your child grows up.

Saving for post-secondary education can be a lot like saving for retirement

Often, an RESP subscriber (that’s you, the person who opened the account) can take cues from the advice typically given to people who are saving up for retirement. Factors to consider include:

Time horizon: How long you have to grow the funds before the first withdrawal

Risk tolerance: Your comfort level with market volatility

Budget: How much money you can contribute towards your savings goal

Knowledge and confidence: How comfortable you’ll be with managing the investments yourself

Investing goals: What return on investment you need to meet your financial goal—including keeping up with inflation

Taxes: Withdrawing funds from your account in the most tax-efficient way

Let’s look at each of these factors in more detail, and what investments could be a good fit at different stages in your RESP journey…

Whether your child eventually goes off to university, enrolls in a college program or is interested in another type of schooling, there’s no way around it: post-secondary education is pricey. In Canada, the average undergraduate tuition fee for the 2022–23 school year­ was $6,834. Over four years, this can bring your child’s education costs to a whopping $95,000 or more when factoring in living expenses, and by 2041, this price could rise to $114,024.

It’s a big goal, but with a registered education savings plan (RESP), you can slowly save up for the cost of your child’s future tuition fees, books and other schooling expenses over time—and get a little help along the way. Did you know that the Canadian government will match a percentage of your RESP contributions? Plus, there are federal and provincial grants available for lower-income families, and these can really add up. Here’s what you need to know.

What RESP grants are available?

When you contribute to your child’s RESP, the government will match a percentage of your contributions through the Canada Education Savings Grant, up to a lifetime maximum of $7,200—an amount that could make a big difference in bolstering your savings long-term…

A registered education savings plan (RESP) is a long-term investment strategy that allows parents, grandparents, family members and friends to help pay for a child’s future university or college education or job skills training.

Tuition fees are often top of mind, but the funds you save inside an RESP can be used for much more—they can pay for any education-related cost, from a new tablet to a transit pass.

How does an RESP work?

An RESP is a type of registered savings account that offers tax-deferred growth, partial contribution matching from the government, and additional grants to help families save for a child’s education.

When you tally up tuition, books, technology, room and board, and other expenses, the cost of a post-secondary education can be pricey. According to Statistics Canada, full-time undergraduate tuition fees for the 2022–23 academic year averaged $6,834, and professional degree programs ran as high as $23,963 (for a degree in dentistry)—and that’s just for one year…

Ask MoneySense
How is tax treated by CRA in a joint brokerage account with my son (not spouse). Is it the same as with a spouse?

All funds are mine, and I moved them to a new brokerage account, but now included my son’s name. The reason being, as I am getting older, this move is to make my estate planning more convenient.

I understand that I still declare all my dividends, capital gains and losses 100% and no splitting income.

—Jing

Tax implications of jointly owning an investment account with your children

Before I delve into the answer for your question, Jing, I will do a little primer on income attribution rules.

When you give cash or assets to a family member to invest, there may be attribution of that income back to you. Attribution causes income to be taxed on the original taxpayer’s income tax return. Attribution applies:

Between spouses. So, if a high-income spouse gives money to their low-income spouse to invest, with the goal of reducing their tax payable, the attribution rules apply…

An RESP, short for registered education savings plan, is a powerful tool that families can use to save for a child’s post-secondary education. RESPs have many great benefits, including tax-deferred growth and access to thousands of dollars’ worth of free government grants and bonds. But… using an RESP isn’t exactly intuitive and Canadians often have a lot of questions about them.

As we head into the back-to-school season, I’ll tackle the top five questions we hear from clients at Embark.

1. What can an RESP be used for?

An RESP can be used for just about any education-related cost—not just for tuition. Although, tuition is one of the biggest expenses, and it’s one of the key reasons parents and grandparents open an RESP. For the 2022–2023 academic year, the average tuition fee for a full-time undergraduate student in Canada weighed in at $6,834—2.6% higher than the year before.

Tuition costs have been incrementally increasing every year, and some professional programs cost significantly more than others…