The Truth Behind Registered Education Savings Plans (RESPs)
Common myths about RESPs and why you shouldn't rush it
A Registered Education Savings Plan (RESP) is usually a must have account for any parent planning to save for their child's education. The government offers a 20% matching grant up to $500 annually and $7200 over a lifetime (Canadian Education Savings Grant - CESG), while low income families (if eligible) can receive even more with a 30% matching grant for the first $500 of contributions, an initial $500 deposit through the Canada Learning Bond (CLB), AND an annual $100 each year through the CLB as well.
However, many parents don't realize how a simple account can make a world of difference to one's finances when signing up. With the best intentions, they open up accounts without doing the proper research. Here are some of the myths that surround RESPs:
- Only specific "RESP companies" can provide the plan - FALSE
- ALL major banks AND many investment institutions allow an individual to open an account AND receive the grants mentioned above.
- Lower investment management fees are the best option - FALSE
- Although fees can impact future values of savings, there are many other factors that can play a part as well. Performance, hidden costs, and penalties, just to name a few.
- You need to open an account as soon as possible - FALSE
- RESP grants AND bonds will NOT be lost if you open an account a few years after your child is born. Grants can be carried forward and available in the future (up to $1000 annually), while the Canada Learning Bond can be received retroactively if eligible.
Many new parents are understandably excited about their new bundle of joy and want to provide them with a great start by saving for their education. However, rushing into things rarely is a benefit to anyone. Working with a qualified Certified Financial Planner you can determine the following:
- Is it better to start a RESP now or later?
- What are the differences between RESP plan types (yes, there is more than one) and providers?
- How much should I invest and why?
Lastly, make sure you do your own research! It's good to have strong government resources like the:
- Ontario Securities Commission - https://www.getsmarteraboutmoney.ca/learning-path/resps/
- Canada Revenue Agency - Registered Education Savings Plans (RESPs)
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