In order to first determine how to maximize your RESP, we need to define what an RESP is. The Registered Education Savings Plan (RESP) is an investment program where the Government matches 20% of your contributions into a tax sheltered account (similar to an RRSP). The money can then be used to fund education costs for your student beneficiaries listed under the plan. There’s also the Canada Learning Bond where the Government offers up to $500 for low-income families to be contributed into the account and various other grants that you can apply for based on your family income.
Benefits of an RESP
Help you systematically save and plan for a child’s education
Tax-sheltered growth – there’s no taxes payable on the money earned in a RESP until it’s withdrawn
Government Grants – Government matches 20% of RESP contributions up to $2,500 each year and to a lifetime maximum of $7,200
Additional Grants available for low-income families
Ability to catch up for any prior years you missed contributing
Save on your own schedule - No pre-defined savings structure within lifetime contribution limit of $50,000
RESP loans can be used to maximize the Government Grant
Most part-time and full-time post-secondary education qualifies for purposes of a withdrawal
With a Family RESP, if one sibling doesn’t pursue post-secondary education, other siblings can use their grant money
How can I maximize my RESP?
Start Early
RESP investments work like other forms of investments in that the longer the money has to grow, the better off the investments will be. Families with young children can also benefit the most from the RESP because they will have more time to qualify for Government Grants, which can be maximized by contributing to the RESP each year. Don’t worry! If you miss a year, you can catch up for one year at a time.
Look at Family RESPs
If you have more than one child, you can open a Family RESP. It allows you to keep your savings in a single account, it simplifies managing the investments, and if one child doesn’t go to school, a sibling can use their Government Grant money without penalty (up to a maximum of $7,200 per child).
Investment Adjustments
Time horizon plays a large part when determining the risk level of the investments you should choose to purchase in your RESP. If you know that the funds won't be used for the next 15 years, then it is more advantageous to have a more aggressive investment approach, but then systematically wind down the aggressiveness of the portfolio as your children grow up and get closer to needing the funds.
What type of education can an RESP withdrawal be used for?
Most post-secondary programs qualify for educational withdrawals: academic programs, skilled trade programs, full-time programs and part-time programs. Studying abroad also qualifies!
If you haven’t yet maximized your RESP contribution for the year, you can still make a deposit before the end of December. We can help you calculate the optimal amount to contribute for this year, or as a regular monthly deposit.