In Canada, there’s a 4-letter acronym that spells “Free money for your child’s education”. It’s called RESP – or a Registered Education Savings Plan. This is a government-approved savings plan that helps parents and guardians of children (under the age of 18) to save for their (the child’s) post-secondary education. And it all grows tax-free!
Best of all, your savings could also qualify for FREE MONEY – through additional grants and contributions made by the government, which could turbo-charge your child’s education savings fund.
A CIBC poll showed that nearly 76% of parents/guardians didn’t understand how RESPs work, which leaves a significant number of children forfeiting financial tools that could help them funding future post-secondary education bills. RESPs are almost like RRSPs (Registered Retirement Saving Plans), with one caveat: You don’t receive a tax-break on your contributions.
- You contribute into an eligible account.
- The money grows tax-free until it’s time to withdraw it to pay for your child’s education.
- If your child is working when the money is withdrawn, he/she may have to pay tax on those withdrawals. In most cases, there will likely be no tax payable at all.
- The money can be used for any education-related expenditure, including tuition and living expenses.
There are other rules applicable to how parents/guardians (“subscribers”) must operate such accounts, including how to withdraw the funds if a child does not pursue post-secondary studies. However, the three bullet points above sum-up how RESPs work.
The government currently has a limit ($50,000 per child) on the amount that you can contribute over the life of a plan. In addition, the government incentivises parents/guardians to save by offering basic and supplemental grants (known as the Canada Education Savings Grant or CESG, and Canada Learning Bond), on eligible contributions that you make into an RESP account.
Learn more about how RESPs work here.
Using a Questrade RESP to Kickstart Your savings
The best way to jumpstart your child’s education saving plan is to use a discount brokerage-sponsored RESP plan, and one of the better ones available is offered by Canada’s leading discount broker Questrade.
- You start saving with as little as $1,000. There are no annual limits (but you do need to be aware of the $50k lifetime limit highlighted previously).
- Make regular contributions through automatic deposits from your financial institution, or using Pre-Authorized Cash Contributions (PACCs).
- The funds can be invested in a variety of investments, including stocks, GICs, bonds, Mutual Fund, ETFs and precious metals, allowing you to construct personalized, diversified portfolios of your choosing.
- Questrade allows dividends from your investments to be automatically reinvested FREE of cost via its Dividend Reinvestment Plan (DRIP) program.
- If required, you can opt for a team of experienced, qualified Questrade professional Portfolio Managers to oversee your child’s RESP investments (more on this later).
It is never too early or too late to start saving in an RESP. If you can put aside $2,500 per year in RESP contributions as soon as your child is born, you could receive up to 20% of that amount from the government. Imagine how that money can grow, compounded and tax-free, until it’s time to withdraw the funds to pay for your child’s education.
Ease of Managing Questrade RESPs
If you have more than one child, with a Questrade Family RESP account, you don’t need to worry about creating, managing and monitoring multiple accounts. Instead of investing in multiple-lots in each of several accounts, the Family RESP account enables you to buy larger share lots in a single account.
The Family plan allows you to name multiple children as beneficiaries of the plan, and allows any/all of them to use that money when the time comes. There is a caveat to this arrangement however: All the joint beneficiaries must be related to you – either by birth or through legal adoption.
What if you have a beneficiary (either a nephew, grandchild or adult relative) that you wish to help through an RESP, then you could do it by opening a Questrade Individual RESP account. Unlike the Family plan, the Individual plan can benefit someone who isn’t directly related to you.
Cost-effective Questrade RESP Choices
If you are worried about fees (and every parent living on a budget should be!), then Questrade RESPs may be worth taking a closer look at. The discount broker offers two options to help you build your child’s education fund:
- Questrade Portfolio IQ®: This option puts a team of experienced portfolio managers in charge of investing and managing your investments. Compared to many large financial institutions, Questrade management fees for this service are on the lower end of the spectrum.
- Questrade Self-directed RESP: This option puts you in command of building and managing your child’s RESP investments
Regardless of which option you go with, there are additional fee-savings that you can benefit from:
- There is NO COST to open a Questrade RESP account
- If your combined (across multiple Individual/Family/Group accounts) balance is $15,000 or more, you’ll pay NO ANNUAL FEE
Every dollar that you save on fees goes directly into building future wealth for your child’s education. Combine these cost savings with the power of compounding, and turbo-charge them with additional FREE MONEY that you could be entitled to from the government, and a Questrade RESP account could be the best investment you could make in your child’s future!