Planning for your child’s future can be a daunting task, and some financial advisors recommend using a Registered Education Savings Plan (RESP), which can help parents create a plan to cover the cost of post-secondary education.
A RESP is a tax-deferred account to help save for your child’s post-secondary education with a lifetime contribution limit of $50,000 per child. The plan can extend further to cover grandchildren and loved ones to pay the cost of full- or part-time education programs.
“Parents are trying to help their kids out with this, so they don’t end up with that debt,” Julie Saberras, head of wealth planning at Manulife Wealth, told BNN Bloomberg in a Tuesday interview.
The average cost for a four-year tuition program without residence was $54,135 in 2024, according to a CIBC report. The cost is expected to increase to $60,455 in 2030, $67,055 by 2035 and $76,224 by 2040.
The Canada Education Savings Grant will match 20 per cent of your annual contributions, up to $500 per year, to a lifetime maximum of $7,200. The account can be used to pay for universities, colleges, apprenticeships and trade schools.
A Scotiabank report states a RESP could be worth $82,400 if you take into consideration an investment growth of a four per cent rate of return. If you contribute $2,500 each year with an additional $7,500 and receive $7,200 from the federal government, the rate of return would be $82,400. The bank however states the government’s contribution, and the investment growth are taxable upon withdrawal for $32,400 for an account worth $50,000 after taxes.
If however, you contribute $50,000 in the first year, and only take $500 from the feds, at a four per cent rate of return, you’ll receive $51,804. The account will then be worth $102,304. After taxes, the total will be $52,304.
Kyle Taylor, wealth advisor and portfolio manager at TriDelta Private Wealth broke down the cost on a six per cent rate of return.
“If you put in $2,500 each year, annually for 18 years, sure you maximize the grant eligibility that you’re entitled to, but assuming a six per cent annual growth in 18 years, that account is worth $96,000,” Taylor told BNN Bloomberg in a Tuesday interview. “If instead you put the maximum $50,000 right when the child is born, at that same six per cent not maximizing the grant, that account is actually worth about $144,000 at the same time period.”
He said parents can open an account and invest as soon as their child is born and has a social insurance number.
“I always encourage people to start early, because, as we know, compounding growth and an investment account like this, starting early is certainly more favourable,” said Taylor.
He said parents should have conversations with children to see how much they can contribute to the fund through summer jobs or part time work during the school year.
Low income families can tap into an additional incentive to an RESP. The Canada Learning Bond (CLB) is available for eligible children from low-income families born in 2004 or later and provides an initial payment of $500 for the first year the child is eligible, plus $100 for each additional year of eligibility, up to age 15, for a maximum of $2,000.
“It really reinforces why you want to start early and get those contributions in,” said Saberras. “Every little bit matters, so do contribute to it and maximize that free money.”
The account can also be used to pay for textbooks, rent and transportation. Parents, grandparents, relatives and friends can contribute money into a RESP account.
