5 RESP Tips to Not Get Duped

How to use a Registered Education Savings Plan

Not all RESP providers are created equal.

In the 10 years I’ve spent at Brittain Group Financial Services I have had several clients come to me after saving for their child’s education. They had utilized group or pooled RESPs also known as scholarship trusts. In all of these cases, I saw clients who were out if not hundreds, thousands of dollars. Whether it was lack of performance, their child choose not to go to post-secondary education or they could not stick to the strict payment schedule. As we encourage all of our clients prior to investing read the fine print. Find a Certified Financial Planner and have them explain your options. You can also do your own research by starting here.

 RESP Plans can have different features, risk, and costs. Some RESP providers that use group or pooled plans effectively making you commit to an 18 year plan by saving a certain amount each year with annual fees. Group or pool based plans usually have high upfront costs the first couple years. Typically you will forfeit your deposit or fee to transfer out, even if the investment lacks performance. If you fall behind on payments you could also be subject to fees or your participation in the plan could be in danger.

When to start an RESP and how much to contribute?

At Brittain Group Financial Services you decide when and how much money to deposit to your child’s RESP and if a family plan is right for you. The lifetime limit is $50,000.00 for each beneficiary. Registering an RESP with a financial institution allows you to determine how and when to invest. With the assistance of our team of Certified Financial Planners (CFPs) you will select suitable investments based on your personal investment objectives, your risk tolerance and your time horizon. As the time horizon reduces, you can modify your investment selections and decrease risk when you begin to draw on the assets for education. We recommend you begin saving for your child’s education as early as possible to take advantage of government incentives and allow your investment time to grow. Dollar cost averaging is a successful investment strategy and automated contributions will attract monthly grants as well. We recommend selecting a run date to align with your pay day or after the Canada Child Benefit (CCB) is deposited. The goal of dollar cost averaging is to reduce volatility by purchasing more shares when prices are low and fewer shares when prices are high. Consider a $200.00 monthly contribution as follows:

*CESG has two parts: Basic CESG will give you 20% on every dollar of the first $2,500.00 you save in your child’s RESP each year. Depending on your net family income, you could receive an extra 10% or 20% on every dollar of the first $500.00 you save.

**Assuming a 4% rate of return and 17 years of growth.

Your costs and risks should be clearly outlined by your Financial Advisor when making any type of investment. Brittain Group Financial Services has a compensation model to help new clients understand how we are paid and what services you receive.

What are my options if my child does not go to school? 

Having an RESP with a Financial Institution you have the following options:

• Wait. RESP accounts can remain open for up to 36 years. Your child may decide   to continue studying later.
• Transfer the money to a siblings RESP.
• Transfer the money into a registered retirement savings Plan (RRSP) to help you save for retirement.
• Withdrawal your contributions.

The Government of Canada grants if not used for a sibling’s education will be returned to the Government of Canada. At Brittain Group Financial Services the amount that you contributed to the RESP and the income it earned goes back to you. The income earned from the RESP known as growth is taxable. However, this can be offset by transferring to an RRSP or spousal RRSP dependent on contribution room.

Are you receiving the National Child Benefit Supplement? Do you have children born after Jan 1, 2004? Even if you do not have any money to deposit. You could qualify for the Canada Learning Bond (CLB).

*Government Learning Bond makes $100.00 annual installments until the child is 15 years old as long as you qualify.

**Assuming a 4% rate of return and 17 years of growth.    

Considerations

Raising children is expensive and an infant or child will celebrate many birthdays and holidays in their first 17 years. To help ease the pressure have family and friends make contributions to the child’s RESP in lieu of gifts.  

In the event you cannot commit to regular payments unused CESG contribution room can be carried forward. The grants can be used when RESP contributions are made in future years provided specific requirements are met.

We assist our clients by providing as much education as possible. By having the knowledge you can feel confident in the financial decisions you make.   

Is your child (ren) getting closer to post-secondary education? See our tips for parents and students on How to get money-ready for life on campus.

If you have any questions about saving in an RESP please contact us or send an email. 

Lindsay Fothergill B.A., CFP graduated from the University of Guelph with honours in 2006 and began working at Brittain Group Financial Services the same year. Lindsay pursued financial planning as a career and in 2012 and became a Certified Financial Planner. Read more about our team here.

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