If you have kids, or are planning on having kids, you have probably heard about Canada’s registered education savings program (RESP). RESPs are investments that are eligible for federal government grants of 20%, up to a maximum of $500 per year.
I don’t know about you, but a 20% guaranteed return on my investment is pretty good these days. It’s a no brainer really that everyone should start an RESP for their child to help them start their adult life without a huge mountain of debt.
The Sooner The Better
We started late with our RESPs and now we are playing catch-up. It would have been so much more manageable to have started when our children were born. Of course it’s never too late to start one, but the sooner you start, the more government grants you will be eligible for over the years. It’s “free money”!
Keep It In The Family
When choosing an RESP plan, you’ll want to chose a “family plan” that allows you to transfer money between children if needed. Who knows, one of your children might win the lottery and decide they don’t need further education, so it’s important to have the flexibility.
Protect Your Interests
In the unfortunate event that you have to dip into your RESP due to unplanned expenses, you will want to make sure that you can also get your interest back. Many well known plans will not return your interest, only the principle (your initial installments). Of course, the government money will be returned to the government, but your hard earned interest should go to you, not the RESP provider. Generally RESPs that come from a bank provide you with your interest when the RESP is cashed out, but do your own due diligence to find out for yourself and ask.
Automatic payments are the easiest way to stay on top of your RESP contributions, because you don’t have to think about making payments. But if you can only make lump sum contributions, just be try to get them in before the December 31st deadline so that you can benefit from the tax savings of an RESP.
If you are not going to make automatic contributions, you will want to choose a company that makes it easy for you to manage your account online. Wealthsimple offers an easy to use online platform with the flexibility to fund your RESP online, either automatically or by lump sum. It also allows you to see your RESP progress at any time and make changes to the types of investments that your RESP will hold.
Finding Money For RESPs
Finding money in your budget to contribute to an RESP can sometimes be a challenge. One of the most effective ways we have found in the past to “find” money is to cut our monthly bills. By taking money out of other things, like cell phone or internet, I was able to find money within our existing budget that would otherwise be “wasted”.
Another great way to find money for RESPs is to ask relatives to make contributions on special occasions like birthdays or Christmas. It’s a gift that could have a lifetime of value.
Disclosure: this post contains a referral link to Wealthsimple.