With many Canadian children entering university or college this September, many parents are concerned about the rising costs of tuition. Even with government grants and/or loans, you may need to help supplement your child's tuition, as well as supplies, housing, etc. Saving for your child's higher education should be a part of your budget in order to have the necessary funds when they are needed. An RESP also allows others to deposit funds into the account, i.e. grandparents, friends, other relatives.
 
One alternative you may want to consider is using a Registered Education Savings Plan (RESP). This is a special savings account that you can set up that has the distinct purpose of saving money for your child's post secondary education. The Government of Canada allows this account to grow tax free until the child (the beneficiary) who is named in the RESP enrolls in their school of choice. Having an RESP also makes you eligible for such incentives like the Canadian Education Savings Grant and the Canada Learning Bond, which are only available to those who have an RESP.
 
An RESP can be opened through most financial institutions such as a bank or credit union. Some certified financial planners as well as group plan dealers may be RESP providers. Remember that some RESP providers may charge for service fees, and/or limit the amount and/or frequency of your contributions. Do some research to find the financial institution that will best suit your specific needs. All that is required to open up an RESP is your social insurance number as well as the social insurance number(s) of the child(ren) who will be benefiting from this plan. You will need to choose the type of RESP that will be the most beneficial for your specific needs. RESPs are available in 3 different types:
 
• Family Plan: This entitles you to name one or more children as the beneficiaries of this plan. A beneficiary must be related to you, but does not necessarily have to be your child; grandchildren and adopted children are also eligible for this program. A family plan will entitle you to name one or all of the children in order for them to be able to use the money while obtaining their post-secondary education. This is a good plan for those who do not wish to make regular monthly payments.
• Individual Plan: This is for one beneficiary only but does not have to be related to you. This plan also doesn't require monthly payments.
• Group Plan: This is administered by a group plan dealer; be advised that each plan will have its own rules. The group plan dealer typically will invest the money in low-risk securities, i.e. bonds, treasury bills and guaranteed income certificates (GICs). You will have to sign a contract agreeing to make regular payments into the plan over a certain time period. The group plan 'pools' your money with those of other participants (beneficiaries) who are of the same age. The total amount of money that each beneficiary gets is based on the amount in the pool, as well as the total number of students who are in school that year. You will be allowed to enter only one child (does not have to be related to you) in a group plan.
 
Once you have selected the type of RESP plan that is best suited for you, ask your RESP provider about all of your investment choices in order to fully understand the advantages and risks of your options. Some providers may offer a variety of investment options; others may already have a set investment plan in place.
 
The benefit of using an RESP is that the money will grow tax-free while it is in the RESP account. Any money that the investment earns will not be taxed until the money has been withdrawn to pay for your child's education. Money that is withdrawn from the RESP to pay tuition is taxed in the hands of the student. As students usually have little or no income, this withdrawal usually will be tax-free. The money that the investment earns while in an RESP will not be taxed until the RESP is closed due to the beneficiary not pursuing a higher education. If the beneficiary decides not to attend college or university, the money that you have contributed will be returned tax-free. The money that the investment earns while in an RESP will not be taxed until the RESP is closed due to the beneficiary not pursuing a higher education.