As parents, securing our children’s future is a top priority. For many, that means saving for a future home purchase and planning for their education. It’s easy to push education savings to the back burner when college or university tuition seems like a distant reality. But, taking action sooner than later can make a big difference.

Wondering what the benefits of a Registered Education Savings Plan (RESP) are? 

What is a Registered Education Savings Plan?

An RESP is a tax-advantaged savings account designed specifically to help you pay for your child’s post-secondary education including university, college, vocational, trade schools and more. Here’s how it works:

• Tax-free growth: The money you contribute to an RESP grows tax-free. This means you won’t pay taxes on the investment income while the funds are in the account. When they’re withdrawn, they’re treated as taxable income to your child, helping them pay little to nothing in taxes. 
• Government grants: The Canadian government provides several grants to boost your savings. The most common one is the Canada Education Savings Grant (CESG), which matches 20% of your annual contributions up to $500 per year and a lifetime maximum of $7,200 per child. There are also additional grants such as the Canada Learning Bond (CLB) for eligible families, which provides an additional financial boost to children from low-income families.

Why start saving early?

Compound growth: the snowball effect

Compound growth is a powerful concept that works like this: the interest you earn on your savings gets reinvested, so you earn interest on both your initial investment and the interest that has already accumulated. Think of it as a snowball rolling downhill – over time, it gathers more snow and grows larger. The earlier you start saving, the longer your money has to grow, and the more it can potentially accumulate.

Even if you start with a small contribution, the compounding effect can lead to significant growth over time. Saving a little each month can build up considerably over the years, making a huge difference when it’s time to fund your child’s education. If you save $100 per month in an RESP, for instance, that money could grow to $41,348 over 18 years, factoring in all the government grants you get from an RESP and a hypothetical 5% annual rate of return. That’s usually enough to pay for your child’s undergraduate tuition! 

The power of early investing

When you invest your savings early, your money has more time to grow. Investing wisely can offer higher returns compared to just saving in a regular savings account. However, the investment strategy should match your timeline and risk tolerance. At Embark, our glidepath investment strategy focuses on growing your savings in the early years before preserving your growth through more stable investments. Speaking with an Education Savings Specialist at Embark can help you better understand your options and risk profile.

Maximizing government grants

The CESG and other government grants can significantly enhance your savings. By starting early, you give yourself more time to maximize on these grants. For instance, if you contribute $2,500 per year, you could receive up to $500 in CESG funds annually. If you missed out on contributions in the early years, you can still catch up, as unused grant room can be carried forward.

How Embark can help

The Embark Student Plan simplifies the process of saving for education with features like:

• Glidepath investment strategy: At Embark, our RESP plans automatically adjust based on your child’s age. When they are young, the plan focuses on maximizing your savings, and becomes progressively more conservative as they age to try and protect what you’ve built when they need the money for school.
• Digital tools: Use our tools to forecast how your savings will grow. You’ll also have access to industry-leading management tools that make saving, and using your savings, a breeze.
• A plan just for you: Save as much as you want, when you want. Set up automatic contributions to make saving easy and consistent. To keep your plan in good shape, we recommend your total savings hit at least $500 within 36 months. 
• Education savings specialists: Our team is available to help you navigate grants, adjust your savings plan, and provide guidance tailored to your financial situation.

Starting your education savings early can make the entire process smoother and less stressful. By planning ahead and taking advantage of RESPs and government grants, you’ll be well on your way to making your child’s educational dreams a reality. If you have questions or need assistance in planning the best approach for your family, we’re here to help. Book an appointment with us today, and let’s start building a brighter future for your child.

As a REALTOR®, you know firsthand the importance of building strong, lasting relationships with your clients. One way to do so is by offering them exceptional value beyond the house keys. 

Royal LePage® agents can benefit from a special offer from Embark. When you or your client opens an RESP account using the promo code RLP150 and a minimum of $300 is saved, Embark will contribute $150 to the account. This offer is valid exclusively for Royal LePage members until October 1, 2024.