My parents started a Registered Education Savings Plan (RESP) for me on a pretty bare-bones working-class income. They were by no means even upper-middle class and yet with exceptionally strong budgeting and saving skills, they made their first RESP contribution when my brother and I were young, and used those savings to help send us to university.
This was helped, in large part, by the growth they saw in their Canadian Scholarship Trust Plan RESP (which is now available through C.S.T. Consultants Inc., a subsidiary of the non-profit Canadian Scholarship Trust Foundation).
For my parents, the RESP contribution process was always an easy and positive experience. Getting that Educational Assistance Payment (EAP) cheque in the mail from CST before tuition was due each year made a difference to the tune of thousands — annually! My CST RESPs covered more than just tuition and, combined with my summer jobs and other savings my parents had set aside over the years, I was beyond blessed to graduate with a four-year degree — debt-free.
If you ask them now how they got those RESP contributions to grow so well, they’d say this: “start early and be consistent.” I wasn’t even two years old when they enrolled me.
Why did they choose a CST RESP?
My parents first learned about CST thanks to an advertisement, though all these years later they don’t remember whether it was a mailer or something they saw in the newspaper. And, at the time, there weren’t many education savings plans available; they paid into it monthly.
CST RESPs are designed to meet long-term growth and savings goals. My parents tell me that they never missed the money each month because the contribution was quite low and, I quote, “If we couldn’t see it, we couldn’t spend it.”
It was forced savings. Kind of like an auto-deposit to your TFSA.
There wasn’t another education savings plan like CST, and they compared it to an insurance policy with a guaranteed payout. What my fine print-reading father especially liked about the CST Plan was that each beneficiary’s principal was invested for protection and to earn positive long-term returns.
And while back then the only eligible recipients were university-bound students, things have changed. A CST RESP can now be used for college, trade school and even correspondence, too.
How does the CST RESP contribution work?
CST Consultants offers a group RESP called CST™ Advantage Plan, and it also has family and individual plans. All CST RESPs provide the flexibility to contribute within a range of budgets, which is something we all need in these uncertain financial times.
If you need to skip a monthly RESP contribution (or more!), for any reason, CST Consultants has options available to help you stay on track with your child’s RESP. To enroll in the CST Advantage Plan (and become a “subscriber”), you’d choose the amount you can contribute each month for your child, grandchild or another little loved one, with the minimum ringing it at the greater of $9.50 per month or one-tenth of a unit purchased.
With the CST Advantage Plan, everyone’s contributions are pooled with other plan holders who have children the same age as your own; this creates more purchasing power — kind of like Costco when it bulk buys things like toilet paper. Costco gets a better deal because it buys more of something at the same time.
Those RESP contributions then get to grow tax-free in the plan. When your kiddo starts college or university, the income is released in his or her name and taxed at the student’s income level — not yours. And since RESPs can remain open for up to 36 years, your student-to-be has quite a bit of time to start post-secondary school — a gap year won’t disqualify them. Not by a long shot.
My parents saw it as a more risk-averse way to save, and my money was always available when I needed to pay for school. (The apple didn’t fall far from the tree. Hands up if you’re like me and take a low-risk approach to investments; I’m rarely aggressive with money because I’m not rich and I get nervous when it comes to market fluctuations. So, this is totally my investment speed, too.)
Today, CST RESPs still have a low-risk investment strategy since they invest in government and corporate bonds and a mix of exchange-traded funds.
There were never any grand hoops to jump through and my cheque arrived like clockwork at the end of every summer. I think the most work involved at my end was (a) providing proof that I had tuition to pay and (b) depositing those cheques. Let’s be honest — the hardest part was handing all that money over to the registrar each year!
But what happens if your kid decides post-secondary education isn’t in the cards or wants more flexibility on withdrawing the funds? No need to worry — you still have great options to control your payout. A subscriber can transfer the plan to another child, or to either a family or individual savings plan. If eligible, they can also transfer the income and grant income to an RRSP, RDSP or withdraw the income as cash.
What is the RESP contribution limit in Canada and what else do you need to know?
All RESPs in Canada have a maximum contribution limit of $50,000. So, you can only contribute a total of $50,000 to the RESP per child. That means that even if for any reason you have multiple RESPs for one child, the combined maximum RESP contribution has a $50k ceiling. Grants and investment income are added in addition to that total.
The Canadian government has some good info on this here.
RESPs also provide beneficiaries with access to government grants, including the Canada Education Savings Grant (CESG), which provides up to $7,200 per child over the lifetime of an RESP plan, by matching 20 per cent of your annual contributions to a maximum of $500 per year. Lower-income families can also access the Canada Learning Bond, which provides up to an additional $2,000. In all, federal and some provincial grants can add 20 per cent (or more) to your RESP, which is no joke.
Through the Canadian Scholarship Trust Foundation, CST has played a key role in the evolution of education savings in Canada, pioneering a movement to make post-secondary education accessible for all Canadians. CST has encouraged all levels of government to increase spending to support Canadian families and help bust through the financial barriers to education through tax incentives and grants. It has also rewarded hard-working students with more than $2 million in awards, scholarships and bursaries.
We’ve been contributing to our kids’ RESPs every year since they were born, but I think I’ve just convinced myself to double-up and enroll both Miss Q and The K Man in CST Plans as well. (Though we’d better act quickly — CST doesn’t enroll kids after age 13.) Because it sure would be great to try and hit that $50k max.
DISCLAIMERS & DISCLOSURES: C.S.T. Consultants Inc. compensated me for this post. The anecdotes shared here are my true personal experiences with CST and all opinions are my own. C.S.T. Consultants Inc. is the sole distributor of CST™ Advantage Plan and Family and Individual plans, which are sold by prospectus only. RESP contributions are a very personal decision. Like any financial obligation, it’s important for you to understand the terms and conditions and understand the fine print before enrolling. This post does not, in any way, constitute financial advice.