You may know the basics about the RESP (or Registered Education Savings Plan), but there are also advanced ways to get the most out of them that few parents know about.
According to a recent report by Vancity, B.C. families could miss out on as much as $4.6 billion in education grants in their children’s lifetime if current participation and contribution rates continue. B.C. families have the opportunity to access a total of $8,400 in RESP grants per child. Lower-income families can access more ($10,400 per child), including $3,200 that requires no contribution in order to claim it.
Here are five expert tips to help maximize your RESP earnings:
1. Take advantage of the free money available
While some grants require you to make contributions, you may be able to tap into up to $3,200 of free money through the Canada Learning Bond and British Columbia Training and Education Savings Grant, depending on your child’s age and your net family income. The only catch is that you must open an RESP.
2. Get a little help from your friends
The more you can contribute to your child’s RESP, the larger the grants you can get. The Canada Education Savings Grant adds 20% to the first $2,500 of annual RESP contributions each year (or even higher if the primary caregiver is below a certain income threshold), up to a lifetime maximum of $7,200 per beneficiary. Grandparents, aunts, uncles, and friends can also contribute to your child’s RESP to help reach the annual $2,500 contribution needed to maximize this grant.
3. Watch those fees
Nothing is worse than watching the earnings from your RESP get eaten up by fees and extra charges. Set-up, enrollment, annual administration and other fees can add up. Check out www.smartsaver.org for institutions that do not charge these fees.
4. Keep it flexible
Your child’s education aspirations may differ from yours. Make sure that the RESP plan you choose allows no-charge flexibility to change beneficiaries to another child should one decide not to pursue post-secondary education. If none of your kids attend a post-secondary institution and you close the plan you may be able to contribute the earnings to your own RRSP tax-free. But only if you have contribution room.
5. Consider who should open the RESP
It may be beneficial to have the youngest parent set up the RESP as the subscriber. If you end up having to close the plan, you can likely transfer RESP earnings to the plan subscribers’ own RRSP tax-free. This won’t be possible, however, if the subscriber is over 71 (a possibility considering plans can be kept open for 36 years), as that is the age limit for RRSP contributions.