A Registered Education Savings Plan (RESP) is an investment option to help you save for your child’s post-secondary education. Rather than waiting until your child explores their education options to figure out how you’ll pay for it, you can set money aside years in advance and let it grow until your child is ready to use it. As straightforward as an RESP can be, many people make these common mistakes below. Being aware of them might help you avoid making them yourself.
Not Understanding How An RESP Works
Investing in an RESP is a common way to save for post-secondary education in Canada. Yet, many families don’t research much about this savings plan beyond searching, ‘What is an RESP?’ and ‘How do you take money out of an RESP?’
Being well-informed about RESPs can often ensure you get the most out of them and make financial choices that benefit your children. Don’t be afraid to perform a great deal of research before exploring your RESP provider options. The more informed you are, the more decisions you can make confidently.
Not Starting Early Enough
Like any savings plan, an RESP can provide the most value for a child exploring their study options when you start it early on in their life journey. The more time it’s open and being contributed to, the more money it can earn and the less debt your child might need to take on for post-secondary education.
Don’t be afraid to explore RESP options when your child is young to maximize savings potential. There is no age limit for when you can open an account, and you can contribute to it for up to 31 years after you’ve first opened it.
Contributing Too Much
The more money you set aside for your child’s post-secondary education, the less they have to worry about money during their schooling journey. However, keep in mind that you can overcontribute to an RESP.
While there is no annual contribution limit, the lifetime maximum per beneficiary is $50,000. When you exceed that amount, you must pay a 1% monthly tax on your share until the RESP savings are withdrawn.
Not Reviewing Your RESP
RESPs can tick away in the background, waiting until your child is ready to explore post-secondary education. However, it can be worth reviewing your investment periodically. Review its performance and see if you need to adjust your investment strategy based on your child’s age and educational goals. Fortunately, your chosen RESP provider can help with this process to help you maximize your savings potential.
Not Taking Advantage of Grants
Grants can be an excellent way to bolster your savings plan without having to pay anything extra yourself. As daunting as it can be to explore government grants, they can be worthwhile for getting the most out of your RESP. Look at all available options, such as the Canada Education Savings Grant (CESG). This grant might see you receive up to 20% of all your annual contributions to a lifetime limit of $7,200.
RESPs are straightforward savings options to prepare children for the exciting world of education. However, some research can be required. Avoid these pitfalls above, and you might enjoy a stress-free savings journey for your family.