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Diapers one minute and college prep the next. Childhood seems to fly by too quickly. But no matter what stage of parenting you're in, you'll want to save for your child's future education and career goals.
There's a good chance your child will want to continue their studies after high school, so plan now how you'll afford post-secondary — be it college, university, trade school or an apprenticeship.
It's no secret that higher education can be expensive. The average annual cost of post-secondary education in Canada is $19,4991 and the average Canadian grad is carrying $28,000 of debt after completing their bachelor's degree.2
A Registered Education Savings Plan (RESP) can help your child afford to continue their education with the help of government grants. We have five ways to maximize funding their future ambitions but first, let's start with the basics.
An RESP is the most common education savings vehicle to pay for post-high school plans, like college, university or a trade school. It allows parents, grandparents, family and friends to save towards a child's post-secondary education.
While RESP contributions aren't tax-deductible, they do allow savings to compound and potentially grow tax-efficiently until the beneficiary — aka your child — is ready for their post-secondary education.
RESP savings can be used for a wide variety of education-related expenses, too. Your financial advisor will confirm which expenses outside of tuition are approved for RESP usage.
Once you are contributing to an RESP, make sure you're maximizing how much you're saving for your child's future. Consider these five ways to save more in an RESP.
You can make your child's RESP savings stretch even further with additional grants from the Canadian government.
The Canada Education Savings Grant (CESG) matches 20% on the first $2,500 of your eligible contributions each year. So you can receive up to $500 (per year, per beneficiary under 18) to a lifetime maximum of $7,200.3
Depending on your net family income, you could also receive an additional CESG, of 10% or 20% on the first $500 contributed each year, up to $100 (per year per beneficiary under 18) towards the maximum lifetime CESG of $7,200.4
Let’s look at net family income in more detail. The additional amount of CESG may be up to:
- $100 if the 2021 adjusted net family income is $49,020 or less ($500 x 20% = $100)
- $50 if the 2021 adjusted net family income is greater than $49,020 and up to $98,040 ($500 x 10% = $50)
Eligible families can also take advantage of the Canada Learning Bond (CLB), which adds additional funds to an RESP for each qualifying year. Qualified applicants are children born on or after January 1, 2004. The bond starts as an initial $500 deposit, and then receives an additional $100 deposit annually until the child reaches 15.
This means if you start early enough, you can have the maximum contribution of $2,000 added to your child's RESP. Unlike the CESG, you don't have to personally contribute to the RESP to receive the yearly government benefit.5
Don't underestimate the power of saving regularly even when you feel like you can't contribute a lot to your child's RESP each year. Consider scheduling a monthly $100 deposit or a larger contribution around tax-refund season to make growing your RESP as painless as possible. If you want to max out the $2500 each year, consider contributing $209 each month.
Remember: Every bit helps, especially when paired with government grants. You can contribute to the account for 31 years after it's opened or until you reach the maximum account cap of $50,000.
You can deposit a lump sum or arrange to have pre-authorized contributions (PACs) taken from your bank account on a regular basis. To see how quickly your savings can grow, try out our interactive PAC video.
We would call this strategy an annual investment strategy.
There's no annual maximum contribution to your RESP. You can make contributions of up to a lifetime maximum of $50,000 per beneficiary (ex. your child or whoever the RESP is set up for).
This one-time investment can help put a sudden windfall, ex. from a home sale or an inheritance, to good use. The downside of this investment strategy is that you will only earn the minimum CESG since that grant is awarded based on annual contributions.
Here are how the two RESP contribution strategies compare with each other.
| Annual investment strategy | Lump-sum investment strategy | |
| How does it work? | Contribute $2,500 (or approximately $208 monthly) each year until the beneficiary turns 17, with an additional lump-sum contribution of $7,500 in the final year | Contribute the $50,000 lifetime maximum in year one and remain invested until the beneficiary reaches age 18 |
| Your total contribution | $50,000 | $50,000 |
| Canada Education Savings Grant (CESG) amount | $7,200 lifetime maximum ($500 per year, per beneficiary under 18) | $500 (as there is only one contribution made in the first year)* |
| Investment growth (Assumes a 4% annual rate of return) | $25,200 | $51,804 |
| Estimated value of RESP when beneficiary turns 18 | $82,400 | $102,304 |
| What is taxable and to whom? | Both the CESG ($7,200) and the Investment growth ($25,200) are taxable in the beneficiary’s hands upon withdrawal (a total of $32,400) | Both the CESG ($500) and Investment growth ($51,804) are taxable in the beneficiary’s hands upon withdrawal (a total of $52,304) |
While gifts can fade and break, a contribution to a child's future education will have long-lasting benefits. Anyone can contribute to an RESP — even non-family members and non-Canadians can pitch in!
The following graphs compare both strategies based on an assumed 4% annual rate of return.
There are many benefits to maximizing RESP contributions. Not only can you save for your child's post-secondary education and increase the benefits of an RESP with government grants, but the funds can be used for a wide variety of educational costs. Even if your child decides to pursue education internationally, the RESP can help them with their goals.
Since you can contribute to an RESP for 31 years after the initial opening, you have a long time to save the $50,000 maximum. Due to the nature of an RESP, you can open a plan as soon as your child is born or open the plan when they're a teen and play catch up with your contributions. But keep in mind, if you are catching up, the maximum grant is $1000 per year. If you want to take full advantage of government grants, you'll need to open and contribute to the account as early as you can.
If your child chooses not to go to college or university after high school, you still have ways to use the RESP. Hundreds of other institutions certified by the Minister of Employment and Social Development are also eligible for RESP funds, including courses in massage therapy, truck driving, photography and bartending.6
If none of these courses or education paths fit your child's plans, you have other options for your RESP:
- Keep the account. You can leave the account as-is for up to 36 years. Your child might have a change of goals in 10 years, and these savings will still be accessible to them if the RESP is left open.
- Name another beneficiary. You can name another beneficiary if certain conditions are met. This means if you have multiple children, they can be listed as beneficiaries. So if one sibling doesn't want to go to post-secondary school, the other can use the RESP.
- Withdraw your funds. You can make a tax-free withdrawal of your original contributions, but any government grants and bonds received must be returned.
- Transfer to an RRSP. You may be able to transfer up to $50,000 of the investment income, tax-free, to your Registered Retirement Savings Plan (RRSP) or your spousal RRSP, if you have enough contribution room available. Plus, you can also withdraw the investment income as cash (which would be subject to taxes).
- Transfer the money to an RDSP. In some cases, your child's RESP can also be transferred to a Registered Disability Savings Plan (RDSP) in the beneficiary's name.
If you're looking for other ways to save to cover post-secondary costs, you can also open a Tax-Free Savings Account (TFSA). RESPs and TFSAs are similar in that both plans allow for tax-sheltered growth of your investments.
Some benefits of a TFSA:
- Income earned within a TFSA is never subject to tax, even when funds are withdrawn.
- TFSA funds can be used for any purpose — not just for education.
You can find your cumulative TFSA lifetime contribution limit on your Canada Revenue Agency account.
A Scotiabank advisor can develop an education savings strategy that works with your financial situation, incorporating applicable government incentives, to help you meet your child’s education needs.
Whether you started your child's RESP before their first birthday or start saving later on , every bit of savings will help aid your child in their post-secondary goals. Today is the perfect day to start maximizing your RESP savings — or open an account if you haven't already. A Scotiabank advisor can help you set up an RESP and figure out how much savings you might need to contribute before your child graduates high school.
