We are all aware of the value of a good education. As such, we wish to give our children the opportunity to follow their dreams, and invest in their own future, by pursuing a strong and solid education in their field of interest. Standing in the way of this, however, are significant financial barriers. Even as the competitive job market makes a good education increasingly important, rising costs make it more difficult to obtain this education. We do not wish to see our children burdened with crippling debt, so a good savings plan is imperative. One effective tool at our disposal is a registered education savings plan, known as an RESP.
An RESP is an investment vehicle used to save for education. If properly taken advantage of, it can be a very effective means of maximizing our savings efforts. In short, the money invested in the RESP will accumulate interest, which will help finance the education of the beneficiary or future student. When the time comes to utilize the funds, the subscriber, or investor, receives their principle investment back, tax-free (having already paid taxes on the original income). The interest accumulated, however, is transferred to the beneficiary in order to contribute to paying for their education. He or she pays tax on this benefit, but, as students, they will typically be taxed at a much lower rate than the subscriber would have been.
Adding to the value of an RESP, provincial governments will often bolster the savings by contributing additional funds, in proportion to the amount of the investment made. For these reasons, an RESP can be an optimal means of saving for an education.
Like an RRSP, an RESP requires choices to be made with regards to where to invest the money (GICs). Additionally, there are details to be considered, which means that a thorough understanding of the program is essential. How is the money re-distributed in the event that the beneficiary opts not to pursue a post-secondary education? What about instances in which the fund is built by multiple investors, such as separated parents, or grandparents and other family members? What are the limits of the government contributions? Are they being maximized? We don’t want to leave money on the table.
Obviously, the sooner we begin to plan for our children’s education savings, the better. Having said this, no matter whether our children are infants or teenagers, the best time to take the first step is now. Facing this obstacle can seem a daunting task, but sitting down with a financial advisor is a great way to begin. Through careful analysis and a complete understanding of the benefits the RESP program provides, we can begin making decisions that our children will thank us for in years to come.
Their childhood will pass you by in the blink of an eye. Enjoy every moment you can with them, without needlessly worrying about the unknown costs of their future. Starting their education savings early will alleviate your stresses and also open doors to available government grants.
Ken Steele, CLU, CH.F.C
Insurance and Financial Advisor
Suite 230, 1210 – 8 Street SW