Registered Education Savings Plan (RESP)

An RESP (Registered Education Savings Plan) is a great way to save for your child’s future education, with the bonus of getting some help from the government. When you put money into an RESP, it grows without being taxed until you withdraw it for educational purposes. This means your savings have the chance to grow faster compared to a regular savings account. Plus, the government sweetens the deal by matching a portion of what you contribute through the Canada Education Savings Grant (CESG). For example, they’ll add 20% on the first $2,500 you contribute each year, which could give you up to $500 extra a year to help boost your savings.

You can keep contributing to the RESP until your child turns 18, and there’s a lifetime limit of $50,000 per child. There’s no annual cap on how much you can contribute, so it gives you some flexibility depending on your situation. The money in the RESP can be invested in things like stocks, bonds, or mutual funds, so you can choose how to manage it based on your risk preferences and when you expect to need the money.

When it’s time for your child to use the RESP, the money can be used for things like tuition, books, and other education-related expenses at universities, colleges, or trade schools. The cool part is, when the funds are withdrawn, they’re taxed at the student’s rate, which is usually lower because students typically don’t have much income while they’re in school. So, it’s a smart way to make your money go further.

The biggest downside is that if the money isn’t used for education, there are penalties. The government grants would need to be returned, and you could face taxes on any earnings. Also, the RESP needs to be emptied by the time your child turns 35. But overall, an RESP is a really helpful tool for making education more affordable, with a little extra boost from the government to help you get there.