Whether your child is a newborn or starting high school, thinking about saving for post-secondary schooling is overwhelming. With so many options on the market designed to help you save for education, choosing the right one can be tricky - especially when sales associates are trying to sell you their products.
In terms of saving for your children’s education, a Registered Education Savings Plan (RESP) is a great option. Among many benefits, saving money in an RESP account gives you access to government grants, including the Canada Education Savings Grant which matches 20% of your annual contribution up to a maximum of $2500, with a maximum lifetime grant of $7,200 per child. The lifetime contribution limit for an RESP is $50,000 per child. By investing your savings into the right account and taking advantage of grants, your portfolio could cover much, if not all, of your children’s future post-secondary education costs.
How many RESP plans are there, and what are the differences between them?
There are 3 types of RESP plans: Individual, Family and Group. The individual plan is meant to pay for the education of only one beneficiary, while a family plan can have more than one beneficiary. Group plans work differently, and each typically has its own rules and restrictions. Some of the more popular Group plans are provided by the Canadian Scholarship Trust Foundation, Children's Educational Foundation of Canada, and Heritage Educational Foundation.
So what does this mean, and what’s your best option?
When you’re investing your hard-earned money, you want to make sure you have control over where it’s going, how it’s being used, and how tailored your plan is to your needs. Individual/Family RESP plans provide you with this flexibility and are low in cost. This allows you to maximize your savings so by the time your children ready for their post-secondary education, you’ll be ready to help them get started.
On the other hand, Group RESPs are ‘sold’ as units of a trust with significant sales commissions. Not only does this mean they’re higher in cost, but they don’t provide you with the flexibility you may want to grow your portfolio. With this plan, it’s common that sales associates approach potential investors in public to talk them into the investment. Be aware of sales tactics like this. If you’re considering investing in a Group plan, make sure you have read and understood the terms and conditions., and have spoken to a friend who has knowledge of these plans. Remember this is a long term commitment for your children’s future: don’t let a sales associate talk you into something you’re not comfortable with.
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