RESP Features That Are Often Overlooked

Registered Educations Savings Plans (RESPs) are often overlooked or underutilized by Canadians. A study done by BMO Bank of Montreal in 2014 indicates that only one-third of Canadians enrolled in post-secondary study have an RESP. Additionally, the study found that 84% of Canadian students wish they had an RESP and 91% of those without one say that they will set one up for their child. The cost of attending a post-secondary program have increased year over year, so there is value to have an RESP for your child or grandchild before they pursue college or university.

An RESP has advantages over traditional investment vehicles such as a tax-free savings account (TFSA)or retirement savings plan (RRSP). The first is the purchasing power of your investment, as the money in your RESP will generate a 20% return from the government grants of $500 per year (to a maximum of $7,200 for lifetime contribution). In simple terms, if you invest just $50 per month into an RESP, by the end of the year you will have contributed $600. The government will add 20 cents for every dollar invested. In this example, this comes to an additional $120 in the RESP, giving you a total of $720 invested. That is a 20% return on your contribution without including the interest you could generate.

The money you deposit and the government grant money invests similarly to how a TFSA or RRSP works. You have access to multiple funds to choose from that can match your risk tolerance and provide further growth to the RESP.  The benefits do not stop there, as your child can continue to receive grant money up until the age of 17 and you have the ability to ‘buy back’ missed grant years - so even if you were late in setting up the RESP, you can still make up for lost time.

Lastly, RESPs do not expire until age 31, meaning there is no penalty if your child or grandchild decides to wait and not attend a post-secondary program right out of high school. Furthermore, if your child decides to not attend a post-secondary institution, the money is not lost because it can be transferred to an RRSP if there is room. In this instance, the grant money must be returned to the government but all of your contributions to the RESP can be rolled over to your RRSP.

Don’t hesitate any longer to add an RESP into your financial plan; take advantage of the grant money and contribute today.