It’s time to come clean about something that has been weighing on me for awhile. I’m referring to my children’s eduction funds. Setting up a Registered Education Savings Plan (RESP in Canada) for the kids has been on my to do list and I have been procrastinating for years! We are fortunate to have the ability to put some money aside and we’ve been doing that using a direct deposit into an account with Tangerine. But that’s where it has sat…doing nothing.
At age 5 and 7 it was time to set up a proper RESP. Giving them a financial boost and opening educational doors for them, no matter what they choose in their future. My new outlook on life has me much more focused on the future of my kids. I want them to have every opportunity to become great adults who can make a difference.
Why an RESP rather than just adding money to a regular savings account? I got my good friend, who wears almost as many hats as me: Financial Advisor, Harvard & MIT grad, and BC Lion wide receiver, Marco Ianuzzi to give his thoughts from his experience professionally and as a father of 3 young kids.
“In a perfect world everyone would have the means to build an investment portfolio by 1) maxing out RESPs, 2) maxing out TFSA, 3) maxing out RSP, and 4) money invested in a non-registered account. These 4 points should account for 50% of your entire life’s investments (as much as 100% depending on your lifestyle goals etc. But this a topic for our next conversation ol’ Toddy boy) your other 50% of your life’s investment could be in any number of 5) principal property, 6) residential/commercial rental property, 7) small business/franchise 8) invested with you crazy cousin Vinnys monthly idea to become a millionaire (not highly recommended!).
For the moment I want to focus on points 1-4 and specifically the order that you will benefit most by investing in them. Think of each of these four accounts as buckets of water. The RESP is the bucket I choose to fill first as it quite simply gives you free government grant money, as well as being tax sheltered. It is honestly a no brainer because even if you don’t know if your son/or daughter will attend post secondary down the road, no sweat, you have many options should that time come. For me this is an open case/closed case discussion in that there is no argument as to why you wouldn’t max out an RESP. Even cousin Vinny can’t argue against this! If you’d rather put off education saving and just deal with tuition when the time comes, I’d be interested to see the look on your face when ye olde Harvard slapps you with the same $63,025 PER YEAR bill they slapped me with. Of course, disclaimer here is that my statements should not be taken as investment advice and you should talk to a licensed Investment Advisor, and if you don’t have one, here is a decent one 🙂 https://www.linkedin.com/in/marcoiannuzzi/ ”
So the government actually gives grants to all RESP accounts, adding extra money to each child. It really is like free money. To set up an RESP, all you need to do is make an appointment at your financial institution or through your broker. They can guide you through the set up process and get everything sorted but here are some of the things that make a proper RESP a really smart choice.
Once you have set up an RESP for your child, your financial institution can enroll you in the Canada Education Savings Grant (CESG). Make sure you ask them to do this for you, this is the free money part! The federal government will pay a grant to your account based on the amount you contribute, up to $500 per year. This extra grant money gets deposited directly into your child’s RESP. Pretty sweet right? The government grant contributes 20% of your annual contribution per child.
If you are late to the game like we are and haven’t set up an account yet for your older child, you can get the current year grant and one other year totalling up to $1000. However, you can only make up past contributions one year at a time. For example, if your child is now 4 years of age and your plan is to max out the account by putting in $2500 a year and you want to make up for the last four years by adding in a lump sum of $10,000, the government will only give you $1000 in grants per year. Therefore, you are better to play catch up over the next four years by putting in $5000 each year for the next four years. You will then qualify for $1000 in granting money, $500 for the current year and $500 for one past year. There is a limit however, the grant caps out with a lifetime contribution limit of $7,200. This means that for those of you who opened an RESP at birth and have been earning max grant of $500 each year, you will stop seeing grant top ups when your child turns fifteen.
There are some additional funds you can apply for based on your family income. Since there are a lot of different variables, check out the CRA website which is full of useful information and can guide you through the specifics for your family.
And who does not want even more free cash? Each provincial government also offers a variety of different grants and incentives to invest in your child’s future. Since I live in BC, I will focus on what the BC government offers. No matter what province you reside though, I encourage you to find out what your provincial government offers because they all have some great incentives to invest in our kids.
Here in BC, the government is offering an additional $1200 for each child and all you have to do is fill out a form. Seriously, it’s that easy. You do need to have an RESP set up for your child to qualify for the BC Training and Education Savings Grant. Plus, both you and your child need to be BC residents to qualify. This grant is for children born in 2006 or later and can be applied for once your child is 6 years of age. For this one, you must apply for the grant by the time your child is 9 years of age or you will miss on the free $1200. However, there is an extension being offered for those kids who had their 6th birthday in 2013, 2014, and 2015. You have until August 14 ,2018 to get your forms in. But for kids born in 2010 or later, you must apply by the day before your child turns 9. Again, contact your financial institution to find out if they offer this grant and get some help setting this up. You can also find all the details on the BC Government website.
So yes, it means making an appointment at the bank which means finding time in our busy schedules but all this free money is too good to pass up.
Photography by Janis Nicolay http://janisnicolay.com