Born and raised in Toronto, James has called BC his home for over a decade. He has a decade of financial services industry experience alongside a number of industry accreditations, including the Chartered Investment Manager (CIM) and life insurance license. James is a graduate of the University of British Columbia with a BA alongside a Masters of Management from the Sauder School of Business at UBC. Jamie is self-motivated, results-driven and prides himself on being available and accessible to clients who need advice and support.
What is an RESP and who are they available to?
The RESP is short term for the Registered Education Savings Plan, it is specifically designed for helping afford the costs of university, college or post secondary education. They are meant for a family to help pay for a child’s education. To open a RESP, you need a social insurance number.
What types of investment options are available within a RESP? For example, can you trade options?
You can hold a wide variety of investments in an RESP, including stocks, bonds, ETFs, GICs and mutual funds. Options and other more speculative (i.e. risky) trading is not typically allowed inside an RESP.
How do most people decide how to invest their RESPs? What are the different options?
It is important to think about timeline and risk tolerance. The idea is that if there is a big swing in the markets to the negative, can your current situation handle that? If the timeline for investment is longer, you may be able to take on additional risk and invest in more aggressive securities or products. If the timeline is shorter, your investments may not have time to recover and meet your education requirements. Current income, future income, expenses and budgeting can play a factor in this as well.
How do people go about setting up an RESP?
RESPs can either be set up as a family plan or an individual plan. The child is known as the beneficiary and the parent/guardian is known as the subscriber. You can set up a family plan even if you only have one beneficiary, this gives you the most flexibility in case you want to have another child as a beneficiary. RESPs can be set up with a qualified institution which would include most major financial institutions.
What are the contribution limits for RESPs, and what happens if you exceed them?
The maximum lifetime contribution is $50,000 per beneficiary. There are no maximum annual contribution limits like an RRSP or TFSA. If one exceeds the contribution limit of $50,000, the individual will be required to pay tax in the amount of 1% per month on your share of the over-contribution until it is withdrawn.
Can other people put money into a kids RESP on the child’s behalf or does it have to be the person who opens the RESP?
Money invested into a RESP can come from contributions via the subscriber or other individuals as well. Keep in mind that there are programs in place to help save for investing like the Canada Learning Bond (CLB) along with the Canada Education Savings Grants (CESG).
How flexible are RESPs in terms of withdrawals and contributions?
There is no annual maximum contribution limit like there is for a TFSA or RRSP. So one could theoretically contribute the entire $50,000 at one point in time. However, once the money is redeemed (ie. withdrawn for use towards education) it cannot be reinvested back into the RESP. When redeeming the money,the school must be a qualified institution for payment.
What happens if my kid decides not to pursue post-secondary education?
There are a variety of ways to deal with proceeds not used but the most popular is to transfer the money to another beneficiary (say another child) or move the RESP to your own personal RRSP or a spousal RRSP (keep in mind that the child has to be at least 21 and the plan has to be in place for at least 10 years in order to do that). The registered account also has to have available contribution room to receive the transfer. Note that the RESP of a child cannot be transferred to the same child’s RRSP.
Does it cost money to open an RESP?
Unlike a lot of things in life, there is no cost to open one!
How often should you review and adjust your RESP investments?
A good rule of thumb is to review and adjust your portfolio on a quarterly basis. A sound investment strategy should not require dramatic changes but rather minor incremental adjustments. The best kind of portfolio is one that you don’t have to look at. Keep in mind that this is specific to an individual’s personal situation which depends on their investment horizon, risk tolerance and objectives. An investor profile questionnaire is a simple but effective way to understand where your risk tolerance lies. Staying invested might be challenging when the market drops but timing the market (ie. when to buy back in) is virtually impossible. It can be done once or twice but to do it consistently is unlikely. An RESP should be reviewed at most quarterly, at a level of investment growth & risk that you are comfortable with and contributions made into the RESP sooner being better (to allow for a longer period of growth).
What savings programs are there to help grow a RESP?
There are three programs to look at including;
CESG / Canadian Education Savings Grant
This is a matching strategy created by the federal government to help save for education. The government will kick in 20% for every $2,500 contributed on an annual basis to the RESP (so $500 per year). The matching contributions to the RESP from the CESG will continue until a dollar amount of $7,200 received from the federal government has been hit or until the end of the year the child turns 17. Historically, a grant of up to 20% of the first $2,000 contributed could be received each year (so $400 maximum per year) from 1998 to 2006 inclusive, but that grew to $2,500 contributed from 2007 onward.
Canada Learning Bond
This is for low income families that meet government mandated net income threshold (among other qualifiers). Total household income must be lower than $106,717. The Government of Canada contributes up to $2,000 maximum CLB to an RESP for an eligible child. This includes $500 for the first year of eligibility and $100 for each subsequent year up to the age they turn 15. If the child does not pursue higher education, the unused CLB must be repaid to the government.
Provincial Specific Grants
The currently active ones include British Columbia which offers the BCTESG and Quebec that offers the QESI.
If you’d like to learn more about how you can open an RESP for your child, contact James Browne, Wealth Advisor at Scotia Wealth Management at james.browne@scotiawealth.com or visit Jamesbrowne.ca