Fall has officially begun, the leaves are beginning to turn, and many of our young family members are settled back into school. For SFFG, September is a time where we see the benefits of the Registered Education Savings Plan (RESP) in action. When families begin funding tuition, books, residences, and materials for post-secondary education, we ensure they are well-prepared to cover these expenses with their RESP.

If you have yet to withdraw funds to cover school expenses for this semester, now is the perfect time to do so, as the busy month of September winds to a close. For up to $26,860 of withdrawals, all that is required is proof of a beneficiary’s enrollment in post-secondary education. After that amount, receipts need to be included alongside the RESP Withdrawal Form that you would receive from us, or your financial institution. The most common receipts are for tuition, residence and meal plans, but can also include books and school supplies. There is no maximum withdrawal, however, the maximum lifetime contribution limit per beneficiary is $50,000.

An opportunity also lies within these withdrawals, to provide your child with the responsibility to participate in this integral part of their education. Involving your child in the process can allow them to learn about what is required to withdraw from a registered plan, and the earned income of a tax-deferred plan. As Educational Assistance Payment withdrawals are taxable to the beneficiary, the learnings will continue into tax season.

Throughout this, you will also be equipping your child with a greater understanding of managing their own finances – particularly when it comes to savings and investments. The growth of an RESP is a powerful message to share with your student, as they can see how the decision made to fund an RESP and allow it time to grow, has allowed both compounding and investment returns to help pay for the gift of education. 

Albert Einstein has dubbed compounding as the “eighth wonder of the world”, and in their article “Compounding’s Magic”, EdgePoint has referred to time as its chief ingredient, as gains from one period create additional gains in subsequent periods, as the “base” amount grows. The more time you have to watch compounding work it’s magic, the greater the potential. They refer to the “rule of 72”, a “useful shortcut that tells you how long an investment will take to double in value by simply dividing 72 by it’s rate of return”. For example, a $5,000 investment making 8% annually will double in value in nine years.

In our routine conversations with clients, financial goals are of the utmost importance. Saving and investing for the long-term goal of education early on in a child’s life, allows a child, as they become a university-aged student, to benefit from the Canada Education Savings Grant (CESG), as well as the tax-sheltered investment growth of the registered account over-time.

For more information:

CIBC Wood Gundy - Registered Education Savings Plans

EdgePoint Wealth - Compounding's Magic (or how $5k can cost you $150k)