Introduction to RESPs
If you’ve opened a Registered Education Savings Plan (RESP) for your child or children, you’re already taking a great step towards saving for their future education. But what should you do with it now?
How Often and How Much to Contribute
Ideally, you should aim to contribute at least $2,500 per year to your RESP. Since an RESP can remain open for up to 35 years, you have ample time to contribute up to $50,000 for maximum savings. An important date to keep in mind for your contributions is December 31 of each year, which is the government’s deadline for the Canada Education Savings Grant (CESG). The CESG matches 20% of your first $2,500 in contributions per year, up to $500, with a lifetime maximum of $7,200 per child. To receive the full $7,200, you would need to contribute $36,000 strategically.
Understanding the Canada Education Savings Grant (CESG)
The CESG is available until the end of the calendar year in which your child turns 17. However, you can only receive a maximum grant of $1,000 in a given year. This is why it’s beneficial to start saving early, contribute often, and maintain a schedule. It’s also worth noting that you can catch up on contributions in later years if you miss the deadline or can’t contribute the full amount earlier on.
Types of Investments for Your RESP
While you can put cash into an RESP and save, the value may not keep pace with inflation over time. Many families choose to invest in their RESP account so that the money has the potential to grow. An RESP can hold a variety of investments, including:
- Bonds
- GICs (Guaranteed Investment Certificates)
- Investment funds
- ETFs (Exchange-Traded Funds)
- Stocks
- Options
Each of these investment types carries different levels of risk and potential reward. Bonds and GICs offer guaranteed returns, whereas investment funds, ETFs, stocks, and options depend on the performance of the financial markets. It’s crucial to select investments that align with your family’s needs, situation, and risk tolerance. Your investment strategy should consider your time horizon (how long until your child attends college, university, or vocational school) and ensure that the investment risks don’t keep you or your child awake at night.
Getting Help with Investment Choices
If you’re not experienced with investments, don’t worry. You can seek help from experts. Companies like Emark offer assistance in choosing investments. Emark’s student plan, for example, uses a glide path investment strategy that automatically adjusts the allocation of your savings from more aggressive when your child is young to more conservative as they approach the payout period. This approach aims to maximize your funds when you need them.
Conclusion
Saving for your child’s education through an RESP is a forward-thinking move. By understanding how to contribute effectively, making the most of the Canada Education Savings Grant, choosing the right investments, and seeking professional help when needed, you can build a strong financial foundation for your child’s future educational pursuits. Remember, the key to successful RESP management is starting early, being consistent, and adapting your strategy as your child grows. With the right approach, you can help ensure that your child has the financial support they need to achieve their educational goals.