Planning for your child’s future can be exhausting and at times frustrating. These days a college education is more important than ever. 2 out of 3 new jobs demand a post-secondary education. With inflation costs for tuition, setting up a college fund while you child is young is the best way to ensure that they will have something to start off their college adventure with. With all of the options out there, how do you know which one to choose?
A Registered Education Savings Plan (RESP) is a tax-sheltered plan. RESP lets you be flexible as you save and the tax-deferred growth and direct government assistance help you reach goals while saving for your child’s future. RESP is not just limited to your child. You can set one up for someone else (nieces, nephews or grandkids) or you can have a relative set one up for your child. Whoever opens the plan is the one who decides what funds go to whom and when. In order to be listed as a beneficiary on any RESP account, the person must have a valid SIN. But remember RESP is not tax deductible and the lifetime contribution limit is $50,000.
RESP’s have many benefits that come with them. As long as the funds that you put forth in your plan remain there, they are tax deferred. The CESG (Canada Education Savings Grant) matches 20% of the first $2500 that is put in to an RESP. A CLB (Canadian Learning Bond) of $500 is provided to children of families who are entitled to the National Child Benefit Supplement and born after 12/30/2003. Furthermore, children who qualify for the CLB can also receive $100 per year until 15 as long as they are still receiving their National Child Benefit Supplement.
If your child decides to travel or you want to add or change a beneficiary, you will then have 25 years to use the funds that have accumulated in your RESP. RESP’s also come with the option of an automatic withdrawal so that each month, you don’t have to worry about the deposit, it just goes in to your RESP automatically. These can be customized to as often as you like (ex. weekly, monthly, and annually). If you prefer not to do an auto withdrawal, there is also the option to do a lump-sum payment.
If the idea of opening your own RESP does not appeal to you, there is also the option to do a group RESP. Group plans work in the sense that the earnings are grouped together with other children born in the birth year of your child. The idea is that you pay in to the fund for that given year and depending on how many children there are, you get back a certain amount for your child to use. Group RESP plans invest with fixed income investments. These investments are ideally going to have lower return but with increased safety. Some group RESP programs allow you to transfer unused funds in to an RRSP (Registered Retirement Savings Plan).
Both plans are eligible for government RESP grants. While both plans are beneficial to your child and their education, there are some differences between the two.
• Group RESP plans have a contribution schedule whereas self RESP’s do not.
• On that note, because Group RESP’s use a schedule, you may be more likely to save than if you are left to do it on your own.
• Generally group RESP plans do not allow for sharing between siblings, but most self-plans do.
• When you pay in to the pool of a group RESP, you could possibly get a better return on your money as in the case of if there are not many kids in school in the age bracket as your child, you get more money.
Whichever plan you decide to go with, RESP’s in general are a great way to provide for your child and their college education. The benefits of any RESP are great and can put your mind at ease while your child grows.
RBC Royal Bank has an advisor just waiting to assist you with all your RESP needs. They will help you plan and choose with RESP is right for you. You can find out more at their website: http://www.rbcroyalbank.com/resp/index.html or At their customer service number: 1-800-463-3863 Or you can locate your nearest RBC branch for all your RESP needs.
I chose the group RESP for my daughter. I don’t want to put all eggs in one basket. I would like to open another RESP account for my son from one of the big banks. RBC is definitely in my list. I am going to talk to their advisor next week.
Disclosure: I am part of the RBC RESP blogger program with Mom Central Canada and I receive special perks as part of my affiliation with this group. The opinions on this blog are my own.
RESP’s are the way to go, with the cost of education they are a must.