Contributing to your grandchild’s RESPs: What grandparents need to know + MORE May 14th

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…

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…

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…

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…

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…