As graduation season approaches for students in middle school and grade school across the country, advisors have an opportunity to remind clients with children or grandchildren to consider contributing to a Registered Education Savings Plan (RESP), rather than giving a cash gift.
“Graduation is the perfect time to think about how one will fund post-secondary education,” says Robert Armstrong, vice president, managed solutions and registered plans strategy, BMO Investments Inc.
“With the costs of a four-year university degree rising rapidly, parents and grandparents can help by earmarking cash gifts for post-secondary education. A little goes a long way, with government grants and compounded earnings adding significantly to total savings.”
According to a BMO Financial Group study, more than two-thirds of Canadian parents are concerned about how they will fund their child’s college or university education including tuition, room and board, books and spending money. This is not surprising given that today, a four-year university degree can cost upwards of $60,000. For a child born in 2013, costs could reach $140,000.
The study also revealed that 70 per cent of Canadians give their grandchildren, godchildren, nephews and nieces an average of $100 in monetary gifts annually.
Armstrong notes that, if two sets of grandparents each deposit $100 per year to their grandchild’s RESP from the time the baby is born, the RESP could be worth up to $8,000 by the time that child turns 17. The actual amount would depend upon on family income, province of residence and average annual rate of return.
What makes an RESP especially appealing is that the government offers a Canadian Education Savings Grant (CESG) of 20 per cent, up to a maximum of $500 annually, on all RESP contributions. An annual RESP contribution of $2,500 results in the maximum grant.