Turning RESP goals into reality starts with good advice

Getting sound financial advice is among the best ways for parents to ensure they hit their Registered Education Savings Plan (RESP) goals, says Michael Keaveney, client portfolio manager at CIBC Asset Management.

Keaveney said saving for a child’s education is often among the first major investment goals young families take on, and it can be tough to navigate without help.

“If they focus on what they can control — which is starting early and making regular contributions — and then they obtain sound financial advice along the way, they are set up for success,” he said in an Aug. 15 interview.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Keaveney said education costs — including tuition, books, supplies and residence — could soon hit six figures.

“Given those potential costs, we actually think most investors will need to take on some investment risk exposure to meet the savings goal, and that means, on average, a balanced approach with a mix of equities and fixed income,” he said.

Getting an early start is important, he said. A longer time horizon will give more investment options and allow families to take on greater risk for greater reward. This could mean heavier exposure to growth equities in the early years, before they begin to derisk into fixed income and conservative equities a few years before the post-secondary education begins.

Asset allocation is a key consideration, he said, and a mistake he sees all too often is that parents will set up an RESP and think that’s all it takes.

“But what you’ve invested in matters, and given maximum contribution limits versus the likely funding requirements in the future, the return you end up getting is going to have to do some of the heavy lifting if you want to have success,” he said.

How much parents contribute to an RESP each year can also impact what they receive from the Canada Education Savings Grant (CESG), he said. The grant pays about 20% of annual personal contributions, to a maximum of $500 per year for each child. There’s a lifetime limit of $7,200 for the grant per child.

“There’s also a lifetime contribution limit, currently set in 2025 at about $50,000 for your overall RESP contributions,” Keaveney said. “So in a sense, there could be some benefit to spreading out your contributions across a multitude of years, so you maximize the government grant in each individual year, and then get up to that $7,200.”

If parents are able to make lump sum contributions that exceed what they’d need to put in to receive the maximum CESG each year, speaking to an advisor is important, he said.

“A financial advisor can help structure the assets that a client might have within different types of accounts, so that they might be able to both benefit from compounding a lump sum that’s in their possession earlier, but then steadily relocate those assets into an RESP account to actually get the grants that are available to them in the maximum form.”

More ways to save

Aside from an RESP, there are additional education savings options that parents may consider. For instance, there’s the TFSA, he said. While parents will not be able to take advantage of the CESG with any contributions to a TFSA, it does provide tax efficiency because any amounts withdrawn are tax free.

Parents could also consider looking to extended family or grandparents who may want to contribute to education savings goals, Keaveney said. And as a child gets older and starts working part-time, they may be able to contribute to their own plan.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.