Saving for Your Child’s Future – Are RESP’s Enough?

As parents we worry about our children’s future from the moment they are born. We naturally want what’s best for them and that includes the opportunity to get the best education possible. Many parents start planning for their children’s future financially. It’s not enough to want little Susie or Bobby to go to med school – we have to set aside funds to help them get there. Enter RESP’s (Registered Education Savings Plan). RESP’s are a great way to save for your kid’s educational future and they come with a government incentive as well. But are RESP’s enough and are they really the best option when it comes to saving for our children? There’s always a possibility that your child decides they don’t want a post-secondary education and RESP’s have restrictions.

Let’s look at some of the benefits of starting a RESP savings account:

1. The government adds 20% of your annual contribution with a limit of $500 per child per year until they reach the age of 17. This free cash is a great incentive to start saving for your child’s education when they’re young – freeing up money for you when they’re older.
2. The money you invest into an RESP is compounding interest TAX FREE! That means that all interest payments, dividends and capital gains earned are not taxable.
3. Starting an RESP savings account when your child is young gives you time to build a dedicated savings account. Keeping the education savings separate from your other investments makes it harder to “tap” into their education fund for other expenses.
4. Save your child from going into debt to pay for their tuition. I’m a great proponent of keeping your children out of debt – especially to pay for their education. RESP’s may not cover 100% of your child’s education but it’s a start. If you’re an Ontario resident, the new OSAP changes are also a great source of funding to tap into.

If you’ve already started a RESP savings account, you already know about these benefits. Perhaps you’re looking for an additional way to save for their future. After all, if you live in a large city like Toronto, Vancouver or Montreal where the real estate prices are soaring you already know it won’t be easy for them financially to transition from school to purchasing a home. Here are some alternative options to RESP’s that do not have the same restrictions as these savings accounts can be used for more than just post-secondary education.

So if you’ve maximized your RESPs and are now looking for alternate ways to save for your kid’s future or you simply want to know what all your options are. Here are 4 ways to save beyond purchasing RESPs:

1. Open a non-registered account specifically for the purpose of saving for your child’s education. It’s easy to set up, simple to understand and has flexibility, allowing you to withdraw funds any time you want and for whatever reason.
2. Open a Tax-Free Savings Account and let your savings grow tax-free. The money can then be withdrawn in the future without restrictions to help finance your child’s education, wedding or home purchase without having to pay taxes.
3. Set up an informal trust account. It’s more efficient than a regular account and it can be used for anything. While there may not be any government grant money that comes along with it – with proper planning you can still get a tax break from the government.
4. Open an investment loan. For those of you who are more inclined to accept risk, borrowing to invest is also an option that allows for a generous tax break from the government with no restrictions as to how the money can be used. Your financial planner can help you assess your risk tolerance to see if this is right for you.

With RESP’s and other financial planning alternatives the key is to start early. Make sure your household finances are in order first and that you have also taken into consideration your own retirement needs. While we all want what’s best for our children and want to give them as much as we can financially – it still needs to make sense. A good financial planner can help you sort out how much you need to save and the best options tailor made for you.

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