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Building a registered education savings plan to help pay the cost of college or university for your children is just basic investing. Keep costs low, diversify and ratchet down the risk level as your child gets close to graduating from high school.

Using a RESP to cover tuition and living costs is trickier. There’s no manual on how to do it, which means parents sometimes learn by trial and error. Now’s a good time to review RESP withdrawal strategies because the federal government announced some changes for these plans in this week’s budget.

From the point of view of withdrawals, money in an RESP is divided into two categories. One is the Educational Assistance Payment, or EAP, which represents investment earnings and money added to the RESP through the federal Canada Education Savings Grant. The CESG offers a matching grant of 20 per cent on RESP contributions of up to $2,500 per year, to a maximum of $7,200. The other type of withdrawal from an RESP is the post-secondary education withdrawal, or PSE, which is simply the money contributed to the plan.

TFSA, RRSP or RESP: How to choose where to invest your money

RESP 101: How to use a RESP to save for your child's education

For students and parents, the big difference between EAP and PSE withdrawals is tax-related. EAP money is considered income in the hands of the student beneficiary and taxed accordingly, while PSE withdrawals are not taxable because they’re a return of contributions.

The budget raises the amount of EAP that can be withdrawn from an RESP in the first 13 weeks of enrolment in a full-time program to $8,000 from $5,000. Parents, it’s a good idea to take full advantage of this when structuring RESP withdrawals to cover a child’s first year of post-secondary education.

The reason is that it’s unlikely kids aged 18 or 19 will make enough in total income for the year to owe any taxes, even with an EAP added to the mix. Ideally, the amount of RESP money available for EAPs is down to zero by the time your child is landing a better class of summer job and possibly working at it part-time through the year. These higher-earning years are the time to make RESP withdrawals through the non-taxable PSE route.

Before making RESP withdrawals, ask the investment company you work with to provide a breakdown of money available for EAPs and PSEs. With this in hand, you can give instructions for each withdrawal on the mix of EAP and PSE you want. The budget’s increase in the EAP limit is a reminder of the importance of managing these withdrawals to ease a potential tax burden on your kids.

Your thoughts on student debt

Student debt is a flash point in the U.S. as the Supreme Court decides the legality of President Joe Biden’s plan to forgive up to US$20,000 in debt for up to 40 million Americans. The Stress Test personal finance podcast wants to check in with what’s happening with student debt north of the border. How has student debt shaped your life and your spending? If you’d like to share your story on Stress Test, please e-mail

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Ask Rob

Q: I have a registered retirement savings plan with a bank. My question is, would it be better to have an RRSP with another type of financial institution besides a bank to improve my RRSP portfolio?

A: The real question here is how good the returns from that bank RRSP have been. Go to the person at the bank that sold you the funds and ask for information on how its returns compare against other products in the same category. Or, research the fund online. Worry less about the past year and more about three-, five- and 10-year returns. Are you in line with the average or better, or is your RRSP consistently underperforming? If your returns are disappointing, then your options include finding an adviser to take over your portfolio, using a robo-adviser or managing the portfolio yourself at a digital broker.

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

Need help building a low-cost portfolio of index-tracking exchange-traded funds? Try the model portfolios listed on the Canadian Couch Potato blog.

The money-free zone

The baseball season begins Thursday for the Toronto Blue Jays. Scheduled to take the mound on for the Jays on opening day was Alek Manoah, a great young pitcher who was recently featured in a Toronto Life profile. Worth a read even if you’re not a baseball fan.

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