3 Ways to Maximize your RESP’s without touching your budget

By Emmanuel Ramirez

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The RESP (Registered Education Savings Plane) is the most popular investment tool to save for a child’s future post-secondary studies. However, most Canadian parents don’t get to use it at its full capacity. In fact, according to Statistics Canada, the average Canadian parent is missing out on just under 200$ (198.60$) in grants every year. If the RESP was started at the child’s birth, this translates close to 3,400$ (3,376.20$) in unused grants per child. Of course, not every parent can afford to put aside the maximum grantable 2,500$ a year (or 208.33$ a month) per child. If you are one of those parents, this is an article for you! The following are three tips parents can use in order to maximize their RESP’s without having to sacrifice another area of their budget.

  1. Going to Have Extra Money? Great! Force Yourself to Save! Take a slice of that extra cash and put it into RESPs with pre-authorized debit from your bank.

Although this might seem like the most basic idea, it works. Whether we are expecting a salary increase, a tax return, or a lowered expense (e.g. no more car payments), it is important to take ‘’savings’’ measures before the money is in the checking account, like pre-authorized debit transactions. Thus, if you know the budget is about to increase, anticipate and don’t allow yourself to get used to having that extra money; invest it right away!

  1. It’s For Their Future, Why Don’t The Kids Contribute? Let them use RESPs as a piggy bank that keeps on giving!

Of course kids can’t contribute into RESP’s themselves, nor do most make any money for at least the first 15 years of their lives, without it being allowance. However, it might not be a crazy idea to teach kids about saving at a young age. Surely a 5 year-old won’t be thinking about post-secondary education, but teaching children at a young age to save for that one big toy will start good saving habits for them. This can later translate into them wanting to save for their post-secondary studies when they have their part-time job. In this case, children can give that ‘’savings’’ money to their parents to put it into their RESPs and benefit from the governmental grants. In the end, as children invest in their own education, more grants will be given to them.

  1. Take an RESP Loan and profit from the extra grants!

A loan? This might seem like a scary or crazy idea, but taking an RESP loan can actually allow parents to benefit from more governmental grants, without affecting their budget. It is important to note that an RESP loan is not a conventional loan (personal loan or line of credit), where a credit checks and minimum monthly payments are required. Here is how the RESP loan works:

  • Invest in your RESP
  • When the child is close to get to the age of going to post-secondary school (14-17) take the RESP loan if you have not used all of your grantable contributions (36,000$ for every child’s lifetime)
  • The minimum RESP loan in a single year is of 500$ and the maximum is the greater of the following: the amount contributed up to date, 5,000$ or 5,000$ minus that year’s annual contributions.
  • A variable interest rate is applied on the loan (typical rate is of 4.70% per year).
  • The money of the loan is invested into the RESP and you receive the corresponding grants (minimum 20%).
  • You accumulate interest both on the grants and the money that come from the loan.
  • When the child goes to post-secondary school, the company takes their money back as well as the interest charged. You and your child get your contributions, the grants and the interest made.

In the end, the RESP loan allows you to get more grants at a low cost without both affecting your credit score or your budget. It is important to note that not all companies offer the RESP loan, thus it would be important to check with your financial institution if they do.

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