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Monday, August 22nd, 2016

RESPs: Do you have one?

RESPs: Do you have one?

When my kids were little ones, the RESP wasn’t the RESP we have today and I wasn’t convinced it was the best deal going. But over the past 15 years or so, the product has improved, the legislation has become more user-friendly, and the reasons to use it have become crystal clear.

By Gail Vaz-Oxlade

So why are there still so many people who aren’t using an RESP to save for their children’s future education? Only about 35% of eligible kids receive the Canada Education Savings Grant (CESG). That’s the money the Federal government is giving you to put away for your kids. Really? The Feds want to GIVE you money and you don’t want to take it?

Most people’s first response to, “Why aren’t you saving?” is, “I don’t have any money to save.” Did you know that the Canada Learning Bond provides $500 for low-income families to establish a RESP account and allows for an annual contribution of $100? And yet the program only has about an 8% participation rate.

If you haven’t been contributing to an RESP for your kids, it’s not too late to catch up on the whopping grant money gift. As of 1998, the CESG accumulates every year for a child until December of the year she turns 17.

There is no maximum for what you can put into an RESP each year, but there is a lifetime limit of $50,000. But since the maximum CESG a child can receive in a calendar year is $1,000 provided grant room is available, don’t be tempted to catch up too much at once. Each year you can catch up for roughly one year of missed contributions if you want to make the most of the CESG.

There are three types of RESPs available in the marketplace: individual plans, family plans and group plans. I’m not of fan of Group RESPs – typically called Scholarship Trusts. A study prepared for the federal government found that group plans have a number of drawbacks including enrolment fees and preset contributions, forfeiture of enrolment fees and the inability to transfer plans, no entitlement to investment income if the plan is cancelled, and high fees.

If you haven’t opened up an RESP for your wee one yet, today’s the day. It doesn’t have to be a ton of money. Can you manage $100 a month? $50? $25? Just get started. And the next time The Grandparents want to know what to get your Mini-Me for his birthday, a toy and a small contribution to his RESP will keep him happy on his special day and give him options in the future.

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