The air has turned crisper and the leaves are changing colour. You spent the end of summer getting the kids ready for school – you checked off the supplies on their list, prepared lunches, packed bags, signed them up for extra curricular activities, and dropped them off.
Their scholastic journey has begun and they are prepared for future success. Or are they? When planning for their school needs, did you consider what happens when they graduate high school? Do you have a plan to help finance post-secondary education? And is this money secure and safe?
Costs for post-secondary education – universities, trade schools, colleges – are rising every year. One way to help your kids out for their future education needs is through a Registered Education Savings Plan (RESP). If you don’t already, September is a good time to consider investing in one as you prepare them for school and their future.
Why should I consider a RESP for my child?
Contributing to a RESP can make a big difference in terms of how much it will cost you and your child in the future for education. RESPs have many benefits specifically geared to students that other savings plans may not. These include:
- Affiliated government grants. You can apply to the federal and provincial government for grant and tax incentive programs, which will match a portion of the money saved in a RESP.
- Tax-deferred growth. You can contribute up to $50,000 per child to a RESP without any taxes payable on the money earned until it is used. When the money is withdrawn, income earned is taxed at the student’s tax rate – which could be minimal as most students have little or no income.
In addition, by starting early in your child’s life to contribute to an RESP, the more that can be saved due to the impact of compounding interest. For example, you can earn an additional $20,000 by beginning contributions when your child is age 1 versus age 10*.
Making safe RESP investments
You’ve decided to set up an RESP for your child. Great! Now how to do it…
Start by talking to your financial advisor or financial institution. Most banks, credit unions, mutual fund companies, investment dealers and scholarship plan dealers offer RESPs. They can help you plan for future needs and pick out the type of investments that are appropriate for your situation. When considering a provider, ask:
- What fees am I expected to pay, and when?
- When and how much do I have to contribute?
- What kind of investments can I put in the RESP and what are the risks?
- When and how do we receive payments?
- What happens if my child doesn’t go on to further education?
- What if I change my mind?
A handy RESP Checklist can be found on the ASC website that discusses fees, investment risks, and researching RESP providers. The Government of Canada also provides useful information on the program and their grants.
As with any investment, make sure you follow the ‘Check. Protect. Invest’ steps on the ASC’s CheckFirst website to protect yourself and your child’s future from potential investment fraud. Check that the individual or firm is registered to sell securities in Alberta, and if there has been any enforcement history with them. Protect yourself by asking the right questions about any potential investment and watching for red flags of potential fraud. Once you’re confident the investment is right for you and your child, proceed with the final step and…
…invest. Just like when you held their hand on their first day of school, your investment in an RESP will continue to protect and help them as they step out into the world on their own.
*Assumes $200 monthly contribution and a 6% rate of return compounded annually until the age of 18
Red Flags of Investment Fraud
Canada Revenue Agency