So What is an RESP and Why Do You Need One?

Saving for an education: All About RESPs

Have you started saving for your child’s education yet? If you said no, then you should be. Do it. I say so. Just listen to me. I know from where I speak. Because I’ve got two in university right now, and book learning does NOT come cheap.

In fact, post-secondary education expenses, including living away (if that’s the route chosen), can run close to $20,000 a year. That’s a lot. Times 4 years times how many children did you say you have?

Say it in Spanish. Bye bye mucho dinero.

You might disagree with me, but I believe that it’s my responsibility to help my kids out with paying for their education, where possible. I birthed them, I’ve raised them, and I want to send them off to their lives with as little student debt as possible. This is why using an RESP to save has been invaluable.

The day my kids were born my husband and I opened up RESP accounts for them. Anytime we had a little extra money we would put it in the account. And we encouraged grandparents to give education fund money instead of gifts on their birthdays. Because book learning is more important than more toys, that’s for sure.

What’s an RESP? 

RESPs are flexible investment accounts. They can be set up for any beneficiary including children, grandchildren, nieces, nephews, or family friends. The subscriber, the person who opens the account and makes contributions chooses the beneficiary.

Subscribers can contribute as much and when as they’d like, with a lifetime limit of $50,000 per beneficiary for up to 31 years from account opening. RESPs can remain open for a maximum of 35 years.

You might wonder why we decided to open up an RESP and not just a regular bank or savings account. There were a lot of reasons.

It’s personal: Because it’s self-directed, we could contribute as little or as much as we’d like. For families whose income and expenses might fluctuate, this is a real benefit. Otherwise, setting up a direct deposit for an amount you’re comfortable with is a great option.

Tax Reasons: RESPs allow you to grow income in a tax efficient manner. As long as the funds are in the account, the interest income and investment growth are tax-free. When the funds are withdrawn, the income is attributed to the beneficiary, which will result in little-to-no tax being paid.

Just for School: RESP funds are specific for education. That means you can’t withdraw them to buy a new car, which can be tempting if the money is in a regular savings account. To take money out, you have to show receipts for tuition, living expenses, books, and the like.

Saving for a university education: What's an RESP?Government participation: As an incentive for us to save for our children’s educations, the government adds to your account via the Canadian Education Savings Grant. For eligible beneficiaries under 18, the Canadian government will match 20% of the first $2500 contributed in the year to a total of $7200 per beneficiary. Additionally, for children born after January 1, 2004, The Canadian Learning Bond, which supports Canadian children from low income families, adds up to $2000 to a child’s RESP. This

When we set up our RESPs we decided to work with an investment advisor who could help us out with deposits and directing the investment choices. What we didn’t know at the time is that we were probably paying too much in fees and commissions. Canadians pay the highest investment management fee in the developed world (2.42%!) This means that over 18 years of saving for our kids’ educations, we’ve paid out 2.42% of the funds that we’ve saved (as compared to 0.8% in the US). This can really add up, or rather seep out.

I recently found a company called Weathsimple who wants to make investing and saving more reasonable, easy for you. With a philosophy of  ‘set it and forget it’ when it comes to RESPs and a core philosophy of transparency and cost effectiveness, Wealthsimple wants you to be able to open an account, invest your money, trust your educated and experienced advisor, and have the funds at the ready when your baby is all grown up. All at a much lower management fee than is the norm (their top fee is 0.5% and goes down to 0.35%).

What's an RESP and Why Do You Need OneWhile there are cheaper solutions out there, they don’t include a fund manager—not always an option for the busy and financially uneducated

Translate: Trust these types of things to the professionals!

So how does Wealthsimple make saving for your child’s education easy?

  1. Make sure each beneficiary has a Social Insurance Number
  2. Open an account online
  3. Complete a risk questionnaire to determine your risk tolerance (meaning how much you want them to play with your money and what kind of investments you’d be interested in)
  4. Book a call with the Portfolio Manager to discuss finance and investment goals
  5. Fill out paper application (RESPs must be signed by hand while other investment accounts can be virtually signed)
  6. Let Wealthsimple help you out with government grant applications (which will be automatically deposited in your account)
  7. Make a contribution

At all times you’ll have access to see all of your investments when you login.

Interested? Want to learn more about Wealthsimple and its possibilities? Visit their website and have a poke about. Call and speak to someone and see about moving your funds over or opening a new account. The first $5000 is managed for FREE, and PLUS, if you refer a friend to Wealthsimple, you’ll receive another $5000 in your account managed for free (so that’s $10,000 with no fees!)

How about winning a RESP financial consultation with Chief Investment Officer David Nugent and a $200 contribution to your RESP. If you decide to go with Wealthsimple, great, and if not, they’ll direct the funds to your existing RESP.

Sound good? Enter here: 

Note: This post was generously sponsored by Wealthsimple. All opinions are my own.

Wealthsimple Financial Inc. is registered as a Portfolio Manager in Ontario, British Columbia, Quebec, Manitoba, and Alberta. They are technology entrepreneurs and industry experts who are passionate about making investing smart, simple, and low-fee for everyone. Securities in your account are protected up to $1,000,000 CDN. See www.cipf.ca for more details.

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