So you’ve decided to start saving for your child’s future education. But where do you go?
Chances are, you are in one of two camps: you have no idea what an RESP is, or you have no idea what company to use… OR… you know far too many companies, and you aren’t sure which one to pick.
In the end, it’s important to know that the government will give you 20% of your contributions each year, to a total maximum of $7200 for the lifetime of the policy, regardless of which company you ultimately use.
The money all grows tax-free, and currently, you can contribute a maximum of $50,000 into the policy during it’s lifetime.
In all honesty, most companies can be categorized into two groups. Within these groups, they are all kind of the same, so it’s up to you to choose what group is right for you. Below, I’ve divided the types of RESP accounts you can expect into two categories. These aren’t real categories that are industry standard, but I figured it’s an easy way for the average person to look at their options for investing in their child’s future.
Group 1- Free reign, individually managed investments
This group generally includes most banks, credit unions, or fund management companies. The key points to note are: you select the investments, and the growth (and losses) you obtain are squarely on the choices of investments you make. It’s a very no-frills way of saving money for your child, but generally, as long as you choose reliable funds, you’ll probably be fine. There are generally no bonuses or marketed advantages to investing this way, but it’s a tried and true way of saving money in a tax-efficient manner.
Group 2- Company managed investments
This group generally includes companies who specialize in RESP management specifically. The companies manage the investments for you, and they generally include some kind of incentive to use them. It could range in guarantees, bonuses, or cash back. The downside is, every company has different rules, and some may require you to pay significant penalties if you try to cash out early or stop contributing. It’s up to you to know the rules on each company, so make sure you read the rules!
As far as which method is better? It’s really up to the individual. Some people really enjoy managing their investments anyway as a hobby, so it is not a bad idea to use Group 1. However, if you are more of a set-it-and-forget-it kind of person, Group 2 may be the way to go. Plus, it’s nice to get extra “Free” money if the plan has that built in.
Regardless of which strategy you want to use, feel free to contact me, and we can have a meaningful discussion on setting up an RESP for your child, and we can find the right plan for you!
