Family life

Everything you need to know about RESPs

If you haven’t yet started an RESP, or if contributing $2,500 a year to your kid’s education seems completely unrealistic, that’s OK. It’s not too late, and it’s perfectly fine to start small.

What is an RESP?

A Registered Education Savings Plan (RESP) helps parents save for their kid’s post-secondary education. You deposit money into an investment account, and each year, the Canadian government matches 20 percent of the first $2,500 you put in ($500), up to $7,200 over the life of the RESP. Free money! RESPs are an efficient way to save money because the government grant of 20 percent is well beyond any guaranteed interest rate you’d get on another investment.

When should you start an RESP?

If you can afford it, start an RESP right after your baby is born. If you didn’t do that—or if contributing $2,500 a year to your kid’s (or multiple children’s) education seems completely unrealistic, that’s OK—it’s not too late (unless your kid is 15 years old—that’s your last opportunity) and it’s perfectly fine to start small. “Any amount is useful,” says Christine Williston, a Vancouver-based certified financial planner with Money Coaches Canada. “You’ll always get a 20 percent return on that first deposit.” For example, if you put in $20 a month every year until your kid turns 18, they’ll have $7,600 to put toward university, college or trade school. Not too shabby! Another way to boost your RESP is by asking for contributions at birthdays and holidays; if the grandparents still want to get your kid something they can unwrap, suggest something small and ask that the bulk of the money goes into the education fund.

How to set up an RESP:

Step 1: Get your kid a social insurance number, which you can apply for online at Canada.ca or in person at your local Service Canada office.

Step 2: Contact your bank or an investment adviser, or use a robo-adviser, an automated investment website. “Robo-advisers are low fee and don’t require a lot of investment knowledge,” says Williston. “For busy parents who don’t want to manage their own investment, they’re a good way to get an RESP.” Be wary of working with any company that offers group RESP plans, says Julia Chung, CEO and senior financial planner at Spring Planning in South Surrey, BC. Also known as scholarship funds, group plans are, among other things, “onerously expensive and very difficult to get out of once you’re in,” she says.

Step 3: Ask about the type of investments and fees. Any type of investment account can be held in an RESP—for example, a GIC (guaranteed investment certificate), savings account or mutual fund. Be sure to find out what types of fees are associated with the account (this can really vary) and any other rules that might apply.

Step 4: Sign the documents, which will include an application to the Canadian Education Savings Grant (CESG)—that’s how you’ll get the government portion—and make your first contribution. The government grant is deposited automatically.

Step 5: Decide how you’ll fund the RESP. Automatic monthly payments are a great way to keep you on track, but you may also choose to make a lump sum payment at any time—for example, when you receive a tax refund.

Bottom line

An RESP is the best way to save for your child’s post-secondary education, and ideally, you should start one when your child is still a baby, and contribute $2,500 per year. But if that can’t happen, it’s OK. “You’re not a bad parent if your first priority is making sure there’s food on the table,” says Chung. About half of all post-secondary students in Canada use loans to pay for school.