RESPs a vital tool for future education costs

Starting small and increasing contributions as you can will add up in the long run

  • Aug. 20, 2015 6:00 a.m.
Jeremy Stephen

Jeremy Stephen

Jennifer Blyth

Oak Bay News

According to one study, almost $385 million in Registered Education Savings Plan grants went unclaimed in B.C. last year. Just 53 per cent participated in the Canada Education Savings Grant and 37 per cent with the Canada Learning Bond.

So as students prepare for back to school, it’s also time for parents to create their own educational plan for the future.

“In my experience, parents are often overwhelmed with the other expenses and issues involved in raising a child. As such, many families defer the saving of money for their child’s education but never actually get around to doing so,” says Jeremy Stephen, a Wealth Advisor with The Hillyard Stephen Group at RBC Dominion Securities.

“My advice here would be that the best day to set up an RESP for your child or grandchild was yesterday.”

Confusion about how education savings programs work can also be a challenge, but most banks, brokerages and credit unions have experienced financial advisors who can customize a plan.

“Whether it is procrastination or misunderstanding, I would suggest that most Canadian families can’t afford not to utilize an RESP. The longer you wait, the less time your savings have to grow and compound. Ultimately, this will mean less money to use for education and the potential for larger student loans,” Stephen says.

RESPs allow people to contribute up to $2,500 per year (more if there are unused amounts from previous years) and receive a 20 per cent Canada Education Savings Grant from the Federal Government.

“On a full contribution, this amounts to $500 of annual funds (up to a $7,200 lifetime CESG maximum) that would otherwise not be available for future education expenses. The lifetime maximum contribution to any plan is $50,000,” Stephen says, noting that families in a lower tax bracket also have the added incentive of a potential $2,000 Canada Learning Bond.

Both contributed funds and grants/bonds can be invested in stocks, bonds, GICs, mutual funds and other professionally managed investments, depending on the type of institution you open the plan with; you’re not simply placing funds into a “savings” account.

“The growth on the contributed funds compounds on a tax-deferred basis and can often be withdrawn with very little tax during the lean income years that many students experience during school,” Stephen notes.

“Tax-deferred growth and a potentially low student tax rates means more funds for books, tuition, and living expenses.”

Plans can be contributed to for up to 31 years and can remain open for up to 36 years, which also makes RESPs a great vehicle for mature students as well as those looking to attend post-secondary directly out of high school, he says.

Even better, with the exception of family plans, “anyone can contribute to a plan for the benefit of a future student. This can include parents, grandparents or anyone else involved in the success of the child.”

Plans aren’t only for students destined for university, he points out, noting that “Qualifying Educational Programs” are flexible and can include programs as little as three weeks long.

Contributions that are not ultimately used by a child can be withdrawn by the original subscriber with some conditions.

The bottom line? “Don’t wait,” Stephen advises. “Start a monthly contribution plan with whatever you can afford and increase it later as cash flow permits. Most institutions will allow you to contribute as little as $25 per month.”

 

editor@oakbaynews.com

 

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Muddy Valley Farm in rural Saanich is calling for witnesses after its large metal gate was stolen overnight on Monday, Jan. 18. (Muddy Valley Farm/Facebook)
Rural Saanich farm reports large metal gate stolen

Muddy Valley Farm gate stolen overnight by ‘at least two people’

A pinniped was attacked by an unseen predator off the shores of Dallas Road Monday night. (Courtesy of Steffani Cameron)
VIDEO: Seal hunting, not being hunted in video shot off Dallas Road

Victoria woman captures footage of pinniped activity off Dallas Road

Members of the Victoria Police Department, some of whom are shown here observing a moment of silence for victims of a mass shooting in Nova Scotia, experience stress and potential trauma more than most other workers, says Chief Const. Del Manak. While the number of shifts lost at VicPD are soaring, he sees it as a sign people are taking their own health and wellness seriously. (Black Press Media file photo)
Skyrocketing number of lost shifts at Victoria police has a positive side, chief says

Chief Const. Del Manak says officers, staff being more proactive looking after their mental health

A Seed and Stone rendering for White Rock, B.C. (Seed and Stone rendering)
Songhees Nation to open two Victoria cannabis stores spring 2021

Seed and Stone stores will open on Gordon Street and in the Bay Centre

Syringe is prepared with one of B.C.’s first vials of Pfizer vaccine to prevent COVID-19, Victoria, Dec. 22, 2020. (B.C. government)
B.C.’s COVID-19 caseload stays steady with 465 more Tuesday

No new outbreaks in health care facilities, 12 more deaths

Stand up paddleboarder Christie Jamieson is humbled to her knees as a pod of transient orcas put on a dramatic show on Jan. 19 in the Ucluelet Harbour. (Nora O’Malley photo)
Updated: Ucluelet paddle boarder surrounded by pod of orcas

“My whole body is still shaking. I don’t even know what to do with this energy.”

Chilliwack ER doctor Marc Greidanus is featured in a video, published Jan. 18, 2021, where he demonstrates and describes effectiveness of various styles of masks. (Youtube)
VIDEO: Emergency room doctor runs through pros and cons of various masks

‘We’ve been asked to wear a mask and it’s not that hard,’ Greidanus says.

(Pixabay photo)
‘Cocaine bananas’ arrive at Kelowna grocery stores after mix up from Colombia: RCMP

Kelowna RCMP recently concluded an international drug investigation after finding cocaine in local grocers’ banana shipments in 2019

New Westminster TV production designer, Rick Whitfield, has designed an office in a box for British Columbians in need of a private workspace. (BC Box Office photo)
PHOTOS: B.C. man designs ‘box office’ solution for those working from home

‘A professionally designed workspace on your property, away from the distractions of home’

(Pixabay photo)
VIDEO: Tip to Metro Vancouver transit police helps woman 4,000 km away in Ohio

Sgt. Clint Hampton says transit police were alerted to a YouTube video of the woman in mental distress

A woman types on her laptop in Miami in a Monday, Dec. 12, 2016, photo illustration. THE CANADIAN PRESS/AP/Wilfredo Lee
British Columbia government lax on cybersecurity practices, auditor reports

The audit did not highlight a specific threat, but it found breaches in cybersecurity are increasing globally

A mattress on fire gutted the second floor hallway at Town Park Apartments C-block Jan. 17. (Port Hardy Fire Rescue images)
‘Suspicious’ Port Hardy apartment fire could keep tenants out of their homes for months

A burning mattress created smoke and heat, causing several tenants to jump from windows

Cranbrook Food Bank coordinator Deanna Kemperman, Potluck Cafe Society executive director Naved Noorani and Sunshine Coast Community Services Society executive director Catherine Leach join B.C.’s new Municipal Affairs Minister Josie Osborne on a video call about B.C. gaming grants, Jan. 19, 2021. (B.C. government)
B.C. gaming grants reorganized for COVID-19 priorities

Minister highlights community kitchens, food banks

Most Read