Every year, as children head to school, some for the very first time, many parents and caregivers begin to think about their children’s future and how saving for their education factors into their financial goals and savings strategy.
In Canada, the government has developed a program called a Registered Education Savings Plan (RESP) that encourages parents, caregivers and families to save for their children’s education. The money that is invested into an RESP grows tax free. In addition to being tax free, in order to encourage Canadians to open RESPs, the Canadian government also matches 20% of RESP contributions through the Canada Education Savings Grant, up to a contribution limit of $2,500 per year, per beneficiary. While this is a fantastic, forward-looking government initiative to plan for a brighter future, it is also a fantastic investment strategy for parents and caregivers looking to begin investing for their children and their family’s future.
This month, The RaeLipskie Partnership will walk you through the various RESP investment strategies to help you identify the right plan for your family.
What is an RESP?
An RESP is a tax free account that can hold and grow various types of investments. For example, an RESP can include stocks, dividends, ETFs, high interest savings accounts, GICs, or mutual funds. RESPs can hold these various investment types while they grow, and because RESPs are tax free, they are not subject to the same kind of taxes as other investments.
Who can open an RESP?
While it is typically parents and primary caregivers who open an RESP for their children’s education, RESPs can be opened by almost anyone, including parents, caregivers, grandparents, relatives, even close friends, who plan to save and invest for a child. RESPs can be opened by an individual, a family or joint partnerships, spouses, or common law partners.
What are the different kinds of RESPs?
There are three different types of RESP plans, each with a variety of different benefits and investment options.
- Family Plan
A family plan is an ideal RESP option if you are saving for more than one child. Family RESPs have a lifetime maximum saving amount of $50,000 per child, with each child included in the plan eligible for the Canadian Education Savings Grants. This grant is up to 20% of the contribution amount, and has a yearly maximum of $500 and a lifetime maximum of $7,200 per child. The grant requires you to contribute at least $2,500 a year.
While family RESPs operate out of a single account, contributions are linked to individual children based on their social insurance number. Some parents with multiple children choose to invest identical amounts for each child at a time, while others prioritize investing for eldest children first, depending on their educational opportunities and timeline. Family RESP plans can still be contributed to, even as withdrawals are being made for a student’s education.
An experienced advisor at The RaeLipskie Partnership can help you decide which savings strategy is best for your family, while taking into account your current and future finances, as well as your financial goals, to ensure you are making the most of your Family Plan RESP contributions.
- Individual Plan
Individual RESP plans have a single beneficiary. These kinds of plans are ideal when opening an RESP for a child that has no relation to the contributor, as there are no relationship requirements regulating this kind of plan. Anyone in the child’s family or relation, including friends, can contribute to an individual RESP.
Individual RESP plans are also available to adults who wish to save for adult courses or post-secondary education and are also tax-sheltered.
- Group Plan
Group RESPs are different from Individual and Family plans in that contributions to a Group plan are mixed with other individuals’ contributions. There are a number of children in Group RESP plans, and therefore how much money each child gets depends on the sum of the group account. When you invest in a group RESP you are investing in units in a plan that represent your share of the plan. Group RESP plans have slightly more rules and regulations than Family or Individual plans as they are a timed commitment. If you withdraw from the before a specified period of time, you regain your contributions, but your investment growth is then divided amongst those remaining in the group.
RESPs are a fantastic way to invest financially in your child’s future. This tax free initiative encourages families to invest and save for educational opportunities for youth early and adds the added benefit of watching investments grow and expand overtime.
While Family, Individual and Group RESP plans all provide investment opportunities to individuals looking to make financial investments, there are some complexities to making withdrawals from RESP funds. A knowledgeable and experienced advisor from The RaeLipskie Partnership can help you decipher which investment plan and strategy aligns best with your financial position, goals and family and help to ensure efficiency when withdrawing funds.
If you would like to learn more about RESPs and speak with a trusted advisor about your options, contact us at https://raelipskie.com/contact/ today!