The ABCs of RESPs

Planning for how you’ll pay for your child’s college or university education long before they’ve learned their ABCs seem like the stuff of uber-mommyhood but it’s easier than you think. As the name suggests, a Registered Education Savings Plan or an RESP is a type of savings plan specially designed to help parents save for their children’s future post-secondary education.

Follow us on a trip through the alphabet and learn more about how CST RESPs can be a one of the best ways to prepare for your child’s future (which will be here before you know it!).

A is for accumulating investment income on a tax-free basis. Because the plan is “registered”, the Canada Revenue Agency doesn’t collect any taxes on the income your savings earn until the money is paid out to your child for their education – and odds are your child will pay little or no tax on that money.

B is for Beneficiary: Your designated child is the “Beneficiary” of the RESP.

C is for Contributions: You make contributions to the RESP. If you start early and contribute regularly, you’ll make the most of something called “compounded growth” or earning investment income this year on the investment income you earned last year and so on until your child is ready for post-secondary school. Compounded growth helps your savings grow faster.

D is for not-tax-Deductible: Unlike an RRSP, your contributions are not tax deductible BUT they can attract government grant money that is paid into the RESP as soon as the month after you contribute. See “G” for more information on grants.

E is for the gift of Education, possibly the most important investment you’ll ever make for your child because the benefits can last a lifetime.

F is for Flexibility: Your child will have lots of flexible options when it comes to choosing and changing programs of study, including part-time and full-time studies, and choosing or transferring between post-secondary schools in Canada or abroad.

G is for Government Grants: The federal and several provincial governments offer education saving grants to help your child’s RESP grow faster. For example, the federal government’s Canada Education Savings Grant (CESG) matches 20% of the first $2,500 contributed to your child’s RESP annually. Additional CESG is also available, depending on your net family income, and matches up to an additional 20% on the first $500 contributed annually. The lifetime maximum CESG available per child is $7,200. Find out more about education savings grants.

H is for Hurry up and get started! Opening an RESP is easy with CST. We’ve been helping parents save for their children’s education for over 50 years.

I is for Incentives: Not only is the investment income in your child’s RESP sheltered from tax (so all that money has a chance to keep growing right up until your child is ready for school), your contributions are rewarded with government grants (certain limits apply).

J is for Just a little each month can add up to a lot by the time your child graduates from high school.

K is for you Keep your Principal: Your principal (your contributions less fees) is paid back to you when you plan “matures” (see the letter “M” below). You can use that money to help your child pay for their education or put it towards another goal.

L is for Limit: You can contribute up to $50,000 per child over the life of an RESP so you have lots of room to contribute.

M is for plan Maturity: To avoid losing any grant money, the funds that have been contributed must stay in the RESP until your child enrolls in post-secondary education. Generally, RESPs start paying out when you child is 17-18 years old and enrolls in post-secondary education. At CST, we say your group plan “matures” when this happens and you will receive your principal refund. If your child needs more time to decide, plan maturity can be postponed for up to one year at a time until the year the child turns 20. Learn more about how CST RESPs payouts work.

O is for OK, we’ve been strictly alphabetical long enough, let’s skip ahead a bit.

P is for the Peace of mind you’ll feel knowing you’ve done your best to be prepared.

S is for Subscriber: The Subscriber is the adult who opens an RESP for a child, which is usually one or both parents but other people (such as grandparents, family or friends) can open RESPs for your child too or help you contribute; however, the lifetime contribution limit applies to all plans combined for the child.

T is for Transfer: If your child decides that post-secondary education isn’t for them, you can use the savings in the plan for another child and/or you may be able to transfer the income to a Registered Retirement Savings Plan (RRSP) or Registered Disability Savings Plan (RDSP).

V is for VERY awesome parent. Your child already thinks you’re awesome or at least they will until they reach their teen years.

Y (Why) not be prepared to remind them just how awesome you are when they’re ready to start their post-secondary education. Find out more about how CST RESPs can help you prepare for your child’s future education.

W is for What are you Waiting for? Starting to save even a little bit each month will make a world of difference for your child. Graduating with little or no debt will help your grown-up child start their career on a good financial footing and they’ll be far less likely to come back and live in your basement.