That a Registered Education Savings Plan is a good investment for your child’s post-secondary education is not in doubt. There are, however, mistakes some parents make that you should avoid. Here are five of them.
1. Set Up and Forget
Some parents set up an RESP and then forget all about it. Don’t make this mistake. Instead, maintain regular monthly payments and periodically re-evaluate your plan to see if you are on course; and whether you should make adjustments. As you review your RESP, you might want to adjust the terms to align the plan with your goals. A recent CIBC survey found that most Canadian parents are okay with paying two-thirds of their children’s post-education costs. Decide if you want to pay the full cost or part of it.
2. Leaving “Free Money” On the Table
You could be shooting yourself in the foot by not taking full advantage of the plan. You see, when you don’t make maximum contributions to your heritage RESP, you miss federal government grants. For instance, if you contribute the yearly maximum of $2,500, the Canadian government matches 20% of the first $2,500 for every eligible child. The lifetime limit for this government aid is $7,200. Unfortunately, the average young Canadian family contributes below $1,500 to RESP for every child. This equates to leaving $200 in the form of CESG funds on the table.
3. Failing to Treat RESP as an Investment Account
An RESP is like any other investment account. However, too many parents see it as a money-draining expense. Investing in an RESP is a sure bet your child will go through post-secondary education without financial struggles. When you invest in your child’s education when they are young, you get a 15 or 18-year window before cashing out your investment. The one thing you need to be careful about, especially as your child enters high school, is to make sure your investment is stable and not subject to the volatile fluctuations of the market.
4. Starting Late
The best time to start investing in an RESP is as early as possible. This is also the general rule with any other type of investment. However, it’s never too late to start doing the right thing, such as investing in your child’s post-secondary education. It’s important to avoid putting off an heritage RESP investment since you get better returns by starting early. Of course, starting an RESP investment at any time is better than not doing it.
5. Thinking You Can Only Use RESP for Your Child’s Education
Granted, RESP is targeted at your child’s education; but not only in Canada. You can use RESP to fund your child’s post-secondary education outside Canada. You can also use it to fund an apprentice course for your child. Meanwhile, you can use your contributions to the plan, minus grants and profits from those grants, on whatever you want. In other words, your contribution to an RESP is your money to use as you find appropriate.
An RESP is a wonderful investment for your child’s post-secondary education. However, to get its full benefits, start early and avoid other mistakes listed above.
