Top 5 questions about family RESPs + MORE May 13th

Between the gifts and the gatherings, the month of December can be an expensive time of the year. It’s a tough month to think about saving for your child’s future education on top of everything else. (We get it!) But there’s good reason to plan ahead and put some extra cash aside before the end of the year: December 31 marks the annual deadline for your registered education savings plan (RESP) to receive government grants.

To maximize your savings and help to ensure your child has the funds they need when they go off to college or university, you’ll need to deposit yearly contributions—and do it before the ball drops on New Year’s Eve. An RESP can stay open for as long as 35 years, so why the urgency? You need to meet the RESP contribution deadline in order to receive the maximum amount of grant money from the government, which could be as much as $500 a year. Consider it a “holiday gift” for their future.

Why contribute to an RESP every year

One of the best ways for you to save for your child’s higher education is to open and contribute to an RESP…

Investment asset allocation is important during all stages of life for Canadians. It’s probably the biggest single determinant of one portfolio’s success and another’s failure. But your time frame matters. Younger Canadians have long enough horizons, so they can afford to take more risk on growth-oriented equities. Retirees, by contrast, have no guarantee their investment losses can be recouped before they need the money to pay for day-to-day needs.

Add to all this the “tariffying” environment of the Trump trade war, and with it fears of a recession or worse, and it’s certainly not a time for retirees to take excessive risk. I mentioned in my previous column about registered retirement income fund (RRIF) withdrawals advisor John De Goey’s recommendation for retirees to “de-risk” their portfolios. For this column, I followed up with De Goey about the old rule of thumb that your age should equal your fixed-income exposure (bonds and bond exchange-traded funds (ETFs), guaranteed investment certificates (GICs), money market funds and preferred shares)…

As many Canadian parents and grandparents know, a registered education savings plan (RESP) is a powerful savings tool. Although you can create a college or university fund for your child in other ways, such as a bank account or a tax-free savings account (TFSA), they don’t offer the same valuable government grants that an RESP does. It’s designed to encourage families to save, and the only way to get those grants is to make contributions. In addition, an RESP can hold the same types of investments as TFSAs and other registered accounts, and any investment growth in an RESP—including interest, dividends, and capital gains—is tax-deferred until it is withdrawn. (And when it is, it will be taxed in the hands of the plan’s beneficiary—your child, who will likely pay little to no tax.)

Once you’ve opened an RESP for your (grand)child or (grand)children, though, what should you do with it?

How often and how much to contribute to an RESP

Ideally, you should contribute at least $2,500 per year, if possible…

You’ve likely heard the saying “It takes a village to raise a child.” Well, with the cost of college and university tuition rising every year, it just might take a village to pay for post-secondary education, too. That’s where grandparents can help with registered education savings plans (RESPs). If you’re in the fortunate position of being able to help your grandchild save up for their future schooling, what’s the best way to go about it?

The best way to save for school: Open an RESP

Ideally, your grandchild or grandchildren will have an RESP. Perhaps your own kids have already opened one for them. If not, you can open an RESP—in fact, anyone can become a “subscriber,” including parents, guardians, grandparents, other relatives, and friends. A child can be the “beneficiary” of multiple RESPs, but here’s the key detail to note: the lifetime RESP contribution limit per child is $50,000. Any excess contributions will be taxed, so it’s important for contributors to coordinate their efforts…

If you’re saving up for a child’s post-secondary education, a registered education savings plan (RESP) can’t be beat as a savings tool. No other plan or account in Canada will give you access to thousands of dollars in government grants—free money for your kid’s future tuition and other educational expenses. RESPs also offer tax-deferred growth for your savings and investments. And, if you have more than one child or grandchild, you can benefit from the added flexibility of a family RESP.

What is a family RESP? 

Canadians can choose from two types of RESPs: individual and family. Both are registered accounts, meaning that they’re registered with the federal government, and they allow your savings and investments to grow on a tax-sheltered basis. 

Here are the key features you should know about for both types of RESPs:

The lifetime RESP contribution limit per beneficiary (child) is $50,000. 

A beneficiary can have more than one RESP (for example, if a parent opens one and a grandparent opens one), however, the maximum contribution is still $50,000…