BJK Financial Group Blog

As we enjoy our time at the cottage and the backyard barbecue, it's hard to believe that the school year is right around the corner. And maybe this September, it will be relatively normal, i.e. COVID-free. (Here’s hoping)

Maybe you’re dreading the end of another summer, or you’re excited by the prospect of sending the kids back and getting a little bit of sanity. I mean, we love ‘em but sometimes… It’s okay.

I won’t tell anybody.

In fact, my daughter is starting as a freshman at Laurier this fall. These days it’s all about what books to get and what other supplies to lay in for the school year.

 
Just What Is An RESP?

Years ago, my wife and I began planning for our daughter’s post-secondary education from the day she was born. Because of my line of business, we knew about the benefits of investing in a Registered Education Savings Plan (RESP) offers. The number of parents that don’t take advantage of this uniquely Canadian investment tool is quite discouraging.

A significant part of the RESP is the Canada Education Savings Grant (CESG). Employment and Social Development Canada (ESDC) (the last acronym, I promise. Well, maybe). The basic grant provides a 20% top-up to your contribution, up to $500 per year per beneficiary. That means your $2500 contribution immediately grows to $3000 – each year you put that money into the plan.

ESDC will even contribute up to twice that amount for unused grants from previous years – effectively allowing you to make two years’ worth of contributions in a single year. But that is where the top-up will stop.

There are more rules about contributions made when your child is 16 or 17 and when your household incomes fit certain thresholds, but I’ll let you check out the website for those details on your own.

So, as you can see, RESPs are structured to encourage you to invest in your children’s post-secondary education over the long haul - building on compound interest and making RESP contributions a regular part of your financial plan.

And the other thing to remember is that almost anyone can set up an RESP on a child’s behalf, just as long as the overall contributions are within RESP limits. This includes grandparents, aunts and uncles, etc. I have helped many grandparents add this to their ongoing financial plan.

Your RESP Has Lots of Flexibility

And it doesn’t have to be university. You and your child can put that money into any post-secondary program, like university, community college or almost anything else. And you have years to decide what to do. Taking a gap year or two is permitted. And if not all your children decide to pursue more education, the children that do go can take advantage of the additional resources.

And if there is still money left over after all of that, you can transfer it to your RRSP—lots of flexibility here.

Flexibility Yes, But There Are Some Rules of Thumb to Keep in Mind

One of the general rules of thumb I will remind my clients about when setting up their children’s RESP is that the timeline for its usage is significantly shorter than their RRSPS.

So, because the investment window for RESPs investments is shorter, more consideration needs to be given to possible market volatility. The punishing stock market we have witnessed over the last year or so can devastate your child’s educational plans if you are cashing in at the bottom of the market. And if you used your RESP to invest in crypto, well…

That said, the important thing is the timeline until you need the money. Your RESP investments, like your retirement investments, should become gradually more conservative as the time approaches to cash them in. If you’re planning RESP investments while the twins are in diapers, you could try a greater degree of risk and reward… But I would counsel caution—each and every time.

Many excellent portfolio funds offer excellent allocation flexibility. They are the type of fund products I generally suggest to anyone developing their investment portfolios – no matter what the ultimate use of those funds might be.

Time to Go Study – Here’s The Tuition Money

While there is a great deal of flexibility around where your children study, when they attend, and what classes they can decide to take, there are still rules for accessing the funds. Both your financial advisor and educational institution can help you sort that out. Just be ready to jump through a few hoops. Not a lot, just a few.

And money from the RESP can be used for much more than just tuition. Everyone understands that tuition and books are just one expense in the overall process, and RESPs take that into account,

So Here Goes. It’s Time.

And now it’s time for your children to experience frosh week. And for you to begin experiencing empty nest syndrome. Don’t get too comfortable; they’ll be back in May. Or, if they’re attending the local college, they’ll be coming home well after their old curfew – trying to be quiet (but failing miserably). But heck, weren’t we just like that when we were… Oh, never mind.

If you want to talk to me about saving for your children’s education, getting their money out to pay for this year’s tuition or anything else related to your financial well-being, give me a call at (519) 279-0186, email me at [email protected]. I look to chatting with you.

And yes, I’ll be reflecting on how quickly they grow up too.