RESP: A Gateway to Future Education​

3 min read • September 19, 2023

Ever wondered about a savings tool designed exclusively for your child’s education? Welcome to the world of the Registered Education Savings Plan (RESP), tailored for Canadian parents, grandparents and guardians. RESPs make it less daunting to save for the hefty price tag of post-secondary education. ​

But what exactly is a RESP?

Think of it as a specialized piggy bank where anyone with an interest in a child’s education can deposit funds for their future education. While there’s no yearly limit, the overall contributions can’t exceed $50,000 over the child’s lifetime. ​

The most striking benefit of a RESP lies in its tax perks. Although your contributions won’t lessen your tax bill, they do grow tax-free, which means more money for your child’s education in the long run. ​

And it gets even better—the government helps through the Canada Education Savings Grant (CESG), making your savings journey even smoother. For the average household, the maximum grant is $500 per year for a maximum of $7,200 for each child.  ​

Here is what that path could look like to maximize the grant money. ​

The RESP makes financial sense​

Why is a RESP an attractive option for those with investable assets? The RESP stands out because of tax advantages, government grants, and potential for long-term growth. ​

First off, the tax-deferred growth inside an RESP means your investment earnings won’t be nibbled away by taxes annually, allowing your savings to build over time tax-free. Withdrawals from the RESP are taxable income for the beneficiary. As the beneficiary is a student, they have limited income, and there are some tax breaks, meaning that the actual amount of tax owed from a withdrawal is likely to be small.  ​

Then there’s the CESG. This government grant can significantly boost your total education savings, serving as an added incentive to keep stashing away funds for education. Early birds get the worm when it comes to RESP. Starting early and chipping in regularly lets you harness the power of compound growth, where your returns generate additional earnings year after year. ​

Lastly, saving through an RESP encourages financial discipline, a valuable habit that can filter into other areas of your financial life. ​

Your ticket to a brighter educational future​

RESPs serve as a powerful savings tool, tailor-made to support a child’s post-secondary education. It combines tax benefits with government grants and cultivates a savings habit that can make a significant difference over time. ​

While contributions aren’t immediately tax-deductible, the tax-deferred growth within a RESP and the added bonus of government grants like CESG make these savings accounts a worthy contender for your investment portfolio. ​

Like all registered investment accounts, the RESP has many specific rules and features that may be triggered based on your personal circumstances and can house several different investment solutions. As such, it’s essential to align your choice of investment account and investment solution with your financial goals and risk tolerance, and, if needed, seek the guidance of a Matco Portfolio Manager for tailored advice.  ​

So, if you’re looking to shape a better educational future for a loved one, then carving out a portion of your investment portfolio for a RESP might just be a smart move. ​

Start early, invest regularly, and watch the future unfold. ​

James Cook

James Cook CFA

Associate Portfolio Manager

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