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The Smart Cookies

Time to open an RESP? Add to ...

Face it. As a new parent, stealing a moment to brush your teeth before you leave the house means you're on a roll. So when will you find the time to open a Registered Education Savings Plan (RESP)?

Hopefully soon.

With tuition expected to more than double, it's estimated the cost of a post-secondary education 15 years from now could reach $40,000. Good thing there's help available to raise those funds.

You can start building a solid financial foundation for your child's education by opening an RESP and earning up to $7,200 in grant money absolutely free.

Every parent is eligible for a government grant - calculated at 20 per cent of your annual contribution amount - when you invest in an RESP. Currently you're allowed to contribute up to $2,500 a year (from the birth of your child onward) in the fund, and no matter how much you invest you're guaranteed a return.

If you're worried because you haven't opened one yet, good news: RESPs let you play catch up. Say your child is three when you finally open a fund. Since you could have contributed up to $7,500 ($2,500 per year) to that RESP, you're given the chance to make up those missed investments so you don't miss out on the valuable government grant - just not all at once.

You can only make up missed contributions one year at a time. Translation: on top of the $2,500 maximum you're allowed to contribute to your RESP each year, you can make an additional payment of up to $2,500 to catch up on those missed in the first three years of your child's life. If you're able to make both maximum payments - a total of $5,000 - each year for three years in a row, you'll be all caught up by the time your child is six.

Whatever you do, don't wait until your child is nine or older to start an RESP - since grants are only available until the year he or she is 17, there won't be enough years left to make up the eight years' worth of missed contributions. Plus, starting later means you'll have to find $5,000 a year to maximize your potential grant earnings. It's tough enough to save $2,500 a year, let alone $5,000, which is why it's important to start early.

If you do everything to the max, you can contribute up to $50,000 to an RESP - dollars that won't be taxed until they're withdrawn. Even then, it's the student's (i.e., your child's) tax rate that applies and, after basic personal tax exemption and tuition and educational credits are claimed, you'll likely pay very little tax on the money - or none at all.

You'll need a social insurance number (SIN) for yourself and your child to open a plan. There are different kinds of RESPs to choose from so - just like you would a stroller or crib - shop around before you buy. There are three basic types of RESPs: individual plans, family plans and group plans. The one you choose will depend on the number of children you have, their ages, and what you want to invest in. Anyone, including family members and friends, can open an individual RESP for your child. Visit a financial institution to ask about fees, payments (when and how you can contribute), and qualifying post-secondary programs.

Your RESP provider or financial adviser can tell you more about specific plans and help you choose the one that's best for you.

Once you set up your RESP don't keep it under wraps. You may actually be doing your family and friends a favour by telling them about the fund. When they think of a birthday or Christmas gift for your child, they can choose to support his or her future education instead.

Same goes for your baby shower. A onesie just doesn't seem as appealing when your friends can put their ones (and their twenties) toward your baby's post-secondary education. It's one gift your child won't grow out of.

Angela Self will be writing for Globeinvestor.com weekly. She is one of the founders of the Smart Cookies, a group of five women who specialize in personal finance. They are hosts of a self-titled show on the W Network and the authors of The Smart Cookies' Guide to Making More Dough. Find out more about them at

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