Choosing the Perfect Time to Open a Registered Education Savings Plan (RESP)

Investing in your child's future education is among the most powerful gifts you can offer as a parent. With the mounting costs of post-secondary education, any financial buffer you can provide will greatly ease the burden on your child as they navigate their way into adulthood. One incredibly advantageous method for doing this is through a registered education savings plan. 

As a matter of fact, around 49% of Canadians are leveraging this saving tool to ensure that their children have a bright and carefree future.

But when exactly is the best time to open an RESP? Let's dig into that in this article.

What is a Registered Education Savings Plan?

An RESP is a tax-sheltered savings account specifically designed to help parents and guardians save for a child's post-secondary education in Canada. If you want to ensure that your child has a bright future from their very first steps to them walking in through the campus front doors, check out embark.ca and see how easy it is to get all the help you need to navigate the world of RESPs. With their expertise and commitment to providing an easy-to-understand, flexible, and secure platform for your savings, you can ensure that the future of your child's education is set from the very beginning. 

With over 50 years of experience in education savings and planning, they are committed to helping students realize their full potential. Their approach to RESPs is designed to make saving for the future as straightforward as possible. They provide a plan that automatically adjusts to your timeline and expert guidance to make investing easy. It is an innovative digital platform that puts education savings at your fingertips and offers to share your plan with your children.

RESPs offer significant advantages over regular savings accounts, including the ability to accrue interest tax-free and receive government grants. 

The Sooner, The Better

Generally speaking, the best time to open an RESP is as soon as possible. The sooner you start investing, the longer your money has to grow through compounding interest, meaning more money for your child's future. It's never too early to start thinking about your child's education fund; you can even open an RESP as soon as your child has a Social Insurance Number (SIN).

The power of compound interest cannot be underestimated. For instance, if you contribute $2,500 per year starting when your child is born, assuming a 5% annual rate of return, by the time your child is 18, the RESP would have grown to approximately $75,000.

Harnessing the Power of CESGs

In addition to the power of compounding, the Canadian government further encourages parents to save for their children's education through the Canada education savings grant (CESG). This matches 20% of your contributions up to a maximum of $500 per year, as well as a lifetime limit of $7,200. This is essentially free money to boost your child's education savings, but there's a catch—the maximum annual grant can only be carried forward for one year.

Therefore, to fully maximize the CESG, it's best to open an RESP and start contributing at least $2,500 per year from the time your child is born. If you delay opening the RESP, you might not be able to catch up and receive the total $7,200 CESG amount.

Don't Panic

While it's advantageous to start as early as possible, it's never too late to open an RESP and start saving for your child's future education. The fact remains that any amount saved can make a significant difference in lessening the financial stress associated with post-secondary education.

So, even if you haven’t started with RESP early on, don’t fret. You always have time to invest in your child’s future as long as you find the right plan.

A Few Other Considerations

While timing is critical, other factors are also important when setting up an RESP. These include deciding who should be the plan holder (usually a parent or grandparent), the beneficiaries, the type of plan (individual or family), and the investment options that suit your risk tolerance and financial goals.

Bottom Line

The optimal time to open an RESP is as soon as your child has a Social Insurance Number. The sooner you start, the more your investments can compound, and the more you can take advantage of the Canada education savings grant. 

And remember, it's never too late to invest in your child's future. Whatever the timing or the amount, every little bit helps and can make a significant difference in your child's education and future.