RESPs: Your Child’s Future, One Small Step at a Time
As a new parent, you’re already juggling a million things: diapers, sleepless nights, and an ever-growing to-do list. The thought of planning for your child’s future education might feel overwhelming—like one more thing you’re “supposed” to do but don’t have the bandwidth for.
Take a deep breath. Here’s some good news: starting an RESP (Registered Education Savings Plan) for your child doesn’t have to be complicated or expensive. In fact, it’s one of the simplest and most powerful ways to set them up for success—and you can do it with small, manageable steps.
Even better? You can make the process even easier by using a segregated fund (seg fund) within your RESP, offering added growth potential, built-in guarantees, and peace of mind.
Let’s break it down, parent to parent.
What Is an RESP, and Why Should You Care?
A Canadian RESP is a tax-sheltered account designed to help parents save for their child’s post-secondary education. But it’s not just about putting money aside—it’s about giving your child more options in the future, whether that’s university, college, trade school, or another path.
Here’s where it gets exciting: the Canadian government actively wants you to save for your child’s education. That’s why they offer grants and tax-sheltered growth to boost your contributions. Even small, consistent savings can add up to something remarkable.
Why Start Early? The Power of Growth
It might feel strange to think about university when your baby’s just learning to roll over, but starting an RESP early unlocks huge potential for growth.
1. Free Money from the Government
The Canada Education Savings Grant (CESG) adds 20% to your contributions, up to $500 per year (and up to a lifetime maximum of $7,200 per child). That’s free money just for saving.
And if you’re a low- to middle-income family, you may also qualify for the Canada Learning Bond (CLB), which can add up to $2,000 to your child’s RESP—even if you don’t contribute much yourself.
2. Tax-Sheltered Growth
RESP contributions grow tax-free while they’re in the account. That means your investments—whether in mutual funds, segregated funds, or GICs—can compound over time without being eroded by taxes.
3. Time Is Your Best Friend
The earlier you start, the more time your money has to grow. Even small, regular contributions can snowball into something significant by the time your child is ready for post-secondary education.
For example:
• $50 a month from birth could grow to over $20,000 by age 18, assuming an average annual return of 5%.
Small steps today can lead to big possibilities tomorrow.
Using Segregated Funds for RESPs: A Smart Choice
Segregated funds (seg funds) are a powerful option for parents looking to grow their RESP contributions with added benefits and peace of mind. Offered through insurance companies, seg funds combine the growth potential of investments with unique guarantees to protect your money.
Why Seg Funds Make Sense for RESPs
1. Capital Protection
Seg funds offer guarantees—typically 75% to 100% of your contributions—so you can rest easy knowing a portion of your money is safe, even if markets fluctuate.
2. Creditor Protection
In some provinces, funds in a segregated fund are protected from creditors. This can provide extra security if life throws you unexpected challenges.
3. Tax-Sheltered Growth
Just like other RESP investments, growth within a seg fund is tax-sheltered, allowing your money to compound more efficiently over time.
4. Smooth Market Recovery
Many seg funds offer built-in features like automatic resets or lock-ins, which allow you to capture market highs and secure them for future growth.
5. Simple, Stress-Free Management
Investing can feel daunting when you’re already managing the chaos of parenting. With seg funds, professional managers handle the day-to-day investment decisions, letting you focus on what matters most—your family.
By combining the potential for growth with the security of guarantees, seg funds are an excellent option for parents who want to grow their RESP contributions without taking on excessive risk.
Why Choose a Family RESP?
If you have more than one child (or plan to), a family RESP is a game-changer.
• Flexibility: Funds in a family RESP can be shared among siblings. If one child doesn’t use all their money—perhaps they get a scholarship or choose a different path—you can allocate the funds to another child without penalties.
• Simplified Management: Instead of juggling multiple individual RESPs, a family plan keeps everything in one place.
• Maximized Grants: Each child still gets their own CESG entitlements, so you’re not losing out on government grants by combining accounts.
Family RESPs are perfect for parents who want to keep their options open while maximizing efficiency.
But What If My Child Doesn’t Use the Money?
Life is unpredictable. Your child might not need all the funds in their RESP—or any at all. That’s okay! RESP rules offer several options to make the most of your savings:
1. Transfer to Another Child
In a family RESP, unused funds can easily be redirected to a sibling.
2. Transfer to Your RRSP
If you have unused contribution room in your Registered Retirement Savings Plan (RRSP), you can transfer up to $50,000 of the RESP’s investment earnings into your RRSP.
3. Withdraw the Earnings
If none of your children use the funds, you can withdraw the investment growth as an Accumulated Income Payment (AIP). Yes, it’s taxed, but if you’re in a lower income bracket by then, the tax impact may be minimal.
4. Return the Grants
Even if your child doesn’t use the RESP, the money you contributed is yours to keep. Only the government grants would need to be returned.
No matter what, your contributions are never wasted—and the opportunities they create are priceless.
Building a Brighter Future, One Step at a Time
As a parent, you’re already doing so much. Starting an RESP isn’t about being perfect or having all the answers—it’s about taking one small, hopeful step toward your child’s future.
With tools like segregated funds and government grants, even modest contributions can turn into a powerful resource for your child.
Ready to Get Started?
Opening an RESP is simpler than you think, and you don’t have to do it alone. A financial advisor can help you explore RESP options, maximize grants, and align your contributions with your budget.
Consider adding segregated funds to your RESP strategy for growth, security, and peace of mind. Small steps today can lead to big opportunities tomorrow.
Start your child’s RESP journey now—and give them the gift of possibility.
