Top 5 Hacks To Maximize Your Child’s RESP

Many people are saving for their kids’ future education costs in an RESP.

For some parents, it is a higher priority and they want to be able to maximize the benefits of an RESP – not just contribute the standard $2,500/year for each child.

In my latest blog post, video, and podcast episode I talk about the five hacks to maximize your child’s RESP.

You’ll learn:

• How much might a 4-year degree cost in 18 years?
• Is it good for your child to pay for their education?
• What asset allocation is best to maximize your child’s RESP?
• What are the RESP contribution rules?
• How do most parents contribute to their child’s RESP?
• What are the top 5 hacks to maximize your child’s RESP?
• What are the issues with using an In Trust For (ITF) account?
• Should you use a Family RESP or individual RESP?

Should Your Child Pay for Their Education?

Parents often have different approaches to funding their child’s education:

1. Pay for Everything: Believing that education is crucial, some parents cover all costs to prevent their children from struggling financially.
2. Pay for Tuition Only: Some parents cover tuition, while the child handles room, board, and personal expenses.
3. Pay for Tuition and Half of Room & Board: Recognizing the high costs of university, some parents choose a middle ground.

Teaching Kids Money Skills

Teaching children financial responsibility is crucial. The amount of money you give them can impact their future financial independence:

• Good with Money: Children who learn to manage money well will always have it, regardless of whether you give them money.
• Bad with Money: Children who are poor with money will struggle financially, no matter how much you give them.

Encouraging children to take out and repay student loans can be a valuable learning experience. 

You can also cover their costs in a way that promotes financial literacy by having them pay initially and later reimbursing them, showing them savings and expenses as they occur.

What are the RESP Contribution Rules?

The Registered Education Savings Plan (RESP) offers several benefits:

• Grant of 20% of Contributions: For every dollar you contribute, the government adds 20%.
• Maximum Grant $500/Year: To get the full grant, contribute $2,500 annually.
• Maximum Lifetime Grant: $7,200: This requires $36,000 in contributions.
• Maximum Lifetime Contributions: $50,000: Ensure you don’t exceed this limit.

Issues with Using an In Trust For (ITF) Account

While ITF accounts are another savings option, they come with complications:

• Tax Returns: You may need to file a T3 trust return if the account exceeds $50,000 on any day of the year.
• Complex Rules: The “Bare trust debacle” requires careful consideration.

To avoid issues, consider opening two ITF accounts per child, one with each parent.

Should You Use a Family RESP or Individual RESP?

Choosing between a Family RESP and an individual RESP depends on your needs:

• Family RESP: Offers flexibility and simplicity by allowing you to allocate savings to any child.
• Individual RESP: Useful for tracking savings for each child separately.

Best Advice: Open a Family RESP for your first child to keep your options flexible.

How To Maximize Your Child’s RESP

1. Start Early: The sooner you start contributing, the more you benefit from compound interest.
2. Maximize Grants: Contribute at least $2,500 annually to get the maximum grant.
3. Catch-Up Contributions: If you miss a year, catch up in subsequent years to maximize grants.
4. Use Family RESP: Provides flexibility to allocate funds among multiple children.
5. Educate Yourself: Stay informed about changes to RESP rules and benefits.

Planning for your child’s education can be overwhelming, but with the right strategies and tools, you can ensure they have the resources they need to succeed. 

Start early, contribute regularly, and teach your children valuable money skills to set them up for financial independence and success.

Ed