RESPs: Investing in Your Children's Future
Wednesday December 05, 2018
Investing in Your Children’s Future through an RESP
Ironically, the best time to start thinking about your children’s post-secondary studies is while they are still in diapers and learning to talk! Since the registered education savings plan (RESP) is a long-term planning tool, parents who start contributing early have an advantage. Here are some important aspects to be aware of (and take into consideration!) when choosing an RESP.
Start planning for your children’s future early
In New Brunswick, just as across the rest of Canada, we place great importance on education. That said, financial constraints can hold back a person’s ambitions. Having access to an RESP can consequently make a huge difference when the time comes to choose a post-secondary study program and career, even though the amount invested each year may be relatively minor.
Start early to reap the fullest benefits
There are many reasons for starting up an RESP as soon as a child is born. As with most other types of investments, investment duration is a critical factor: the longer you contribute, the more the interest on your investment will grow. In addition, the government makes annual contributions to RESPs.
Graphic: Performance based on 4% annual compounded rate of return and a balanced portfolio.
One thing is certain: an RESP should be viewed as an investment rather than an expense. When the time comes, you can then make the decision to withdraw the original contributions and finance your children’s studies using the income and interest earned on your investment.
Flexible plans adapted to your child’s education choices (and your own resources)
Many parents are reluctant to commit to an RESP-type plan because they’re afraid they’ll forfeit their contributions should their child decide not to pursue (or complete) post‑secondary studies. Although some plans do indeed include clauses governing the duration, level and success of children’s studies, whether university or other, UNI and many other institutions offer highly flexible plans under which children can pursue studies at the level of their choosing (vocational, technical, college or university). They can even change their minds and switch study programs without penalty.
Taking advantage of government incentives
The Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) can boost your contributions by thousands of dollars. The highlights of these two programs accessible to New Brunswickers are as follows:
Canada Education Savings Grant (CESG)
- 20% of your contributions
- Deposited directly to your child’s RESP
- Annual maximum of $500 per child
- Modest-income families receive a supplement
- 10% to 20% of your contributions based on household income
- Annual maximum of $100 per child
- Grant for modest-income families
- $500 deposited on starting up RESP (without parental obligation)
- Additional $100 paid in annually until age 15
These government grants clearly make the RESP one of the most advantageous types of investment tools. A UNI representative will be pleased to assist you in selecting the plan best suited to your needs.
And if family or friends are ever unsure, an investment in your child’s RESP—and future—always makes a wonderful Christmas (or birthday) present!