Secondary Schools - School District #35

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Financial Planning
Beyond the
Classroom
Start that RESP now if you want to get the most
out of it
There are gifts that come with ribbons and gifts
that come with strings. RESPs come with a little
of both. But Avi Kay, a Certified Financial Planner
with Envision Financial Credit Union, said it’s a program
well worth looking into for families planning their
children’s post secondary futures.
“As a new parent myself, I strongly believe that the pros
outweigh the cons,” he said.
On the upside, a Registered Education Saving Plan will
attract matching contributions of 20% from the Government
of Canada. You can deposit up to $2,500 per year
per child in a RESP and the government will kick in up to
$500 per year until your child reaches age 17.
If you do not maximize your annual contributions, the
remaining contributions that would have been matched
do carry forward to future years, although the maximum
government grant paid in any calendar year will not exceed
$1,000.
The lifetime contribution limit is $50,000 per child and
the maximum the government grants can add up to is
$7,200. There are additional generous government grants
depending on one’s household income.
And there’s an upside to RESPs beyond the grant money.
Mr. Kay noted that RESPs are tax-sheltered investments,
which means any investment income earned on your deposited
funds comes tax-free and will compound over
the life of your RESP. As well, they are essentially ‘shell
accounts’, which means that the money you put into a
RESP can be invested in different ways to maximize the
investment income earned.
What’s ahead for
your child after
graduation
from school.
Are you prepared
Illustration by Raymond Brown
To maximize the benefit of an
RESP, you have to get in early
So why isn’t every family rushing out to open a RESP the
moment their child is born Mr. Kay figures less than half
of Canadian families take advantage of the free money
and sheltered investment earnings that come with RESPs.
The biggest constraint, he suggested, is “cash-flow”.
To take full advantage of the program, you have to come
up with $2,500 per year per child. That works out to
$208.33 per month or $96.15 bi-weekly until your child
reaches 17 years old, after which matching grants are
no longer available. For many families that just can’t be
squeezed out of their budgets, especially since the child
rearing years are often when families are most financially
stretched.
As well, some are turned off by the seemingly complicated
rules and requirements of registering an education
savings plan, and potentially tying up a significant investment
over a long period of time. Then there’s the question
of what to do if your child doesn’t continue on to postsecondary
school
Bottom line, you will always get back what you put in.
But if the RESP funds are not used for educational purposes,
the federal government will take back its contributions.
Taxes will also apply to the investment earnings
that were sheltered by the fund, although there are ways
of mitigating that impact by transferring the earnings into
Registered Retirement Savings Plans, if you have room.
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