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RESPs mean free money, so don't hesitate

Any moment now tuition bills are going to hit with a mighty thump.  Andlots of parents will be wishing they’d contributed more to their kid’sRESP, Registered Education Savings Plan.

Any moment now tuition bills are going to hit with a mighty thump. And lots of parents will be wishing they’d contributed more to their kid’s RESP, Registered Education Savings Plan.

An RESP is the best deal going. Here’s how it works. First comes the child, then you apply for a social insurance number and finally you open an RESP.

You can have individual RESPs for each child but there’s no need. Keep it simple smartie! One account is much easier to handle.

The best part is the Canada Education Savings Grant. Most will receive 20 cents on every dollar contributed, up to $2500 per child annually. You can’t beat that return these days.

High income earners will receive a bit less on the first $500 contributed and those with low incomes more. After that the CESG is the same for everyone.

Over the life of the plan, you’re allowed to contribute up to $50,000 per child and the Canada Education Savings Grant maxes out at $7200.

One caution. RESPs are not all the same.

Group RESPs may dazzle with visions of gold when its time for college. However, some of these plans are notorious for high fees and low returns.

Some sales pitches warn that with “other plans” you could lose your RESP contributions if your child doesn’t go on to post-secondary studies. Not true.

You can transfer the funds to another child or withdraw contributions though, depending on your income, you may pay tax on interest or capital gains earned inside the RESP. And you will have to pay back the government grant.

I’m a big fan of plain vanilla RESPs, the kind you open at most major financial institutions. Fees are low and your investment options are wide.