Open this photo in gallery:
Dalhousie University campus in Halifax in 2025. If you’re tapping into an RESP, you’ll need to provide proof that your child is enrolled in a postsecondary institution.Darren Calabrese/The Canadian Press
Our daughter is home for her first reading week, which marks a significant milestone at the start of her university life – and a reminder that we need to prepare for the next payment for tuition and residence fees.
That means we’ll be digging deeper into our registered education savings plan (RESP) and marking a milestone of our own: a full year of payments that will consume about a quarter of the plan.
The RESP structure was never much of a mystery to me: contribute each year, receive a grant of 20 per cent on the annual contribution (up to $500 each year) and invest it wisely.
I must confess, though, that tapping into the RESP always baffled me. Does the whole fund get liquidated at once? Do I invoice the fund for every pencil and snack?
I’m hardly a seasoned pro yet, but I’ve gained four valuable tips so far:
Get proof of enrolment ASAP.
This was an early sticking point. If you are trying to pay that first chunk of tuition, you’ll need to provide proof that your child is enrolled in a postsecondary institution.
This is not always easy, though it can vary by financial institution.
In our case, we stumbled initially with an acceptance letter that was rejected. On our second attempt, up against a tight deadline in early August, we took no chances: We paid $20 to the university for an official letter proving that our daughter is a student.
Estimate how much the RESP will cover.
I thought I had hit this one out of the park. With steady annual contributions and a terrific bull market that rewarded my dividend-focused investment approach, I thought my only problem was going to be how to spend all this money in four years.
Problem averted! Tuition and residence fees alone will exceed $26,000 this year. If I’m fortunate, the entire plan will cover these basic expenses for four years.
I’ve decided to tap 25 per cent of the RESP each year. We’ll use other savings to handle everything else, including some meals, books, transportation and a computer.
My reasoning: If I drained the plan in three years, the final year of university is going to require some heavy lifting. The four-year plan should mean that the extra expenses each year are far more manageable – and they provide a teaching opportunity for our child.
Consider taxes.
RESP withdrawals fall into two buckets. Anything you contributed to the plan over the years is tax-free upon withdrawal. The portion from grants and investment growth is taxable.
We got the exact breakdown from our financial institution, and it worked out to be split roughly 60/40 in favour of the taxable bucket.
Whenever you make a withdrawal, you declare which bucket the money is coming from.
Our first withdrawal was tax-free. It went straight from the RESP to the university, just like paying a bill online.
A big part of the second withdrawal will be taxable to my daughter (limited to $8,000 in the first 13 weeks). The good news: She is in a low tax bracket this year.
Your RESP management responsibilities don’t end when school starts.
Initially, I had thought of liquidating all the investments in our RESP and sitting in safe, easily accessible money market funds.
But it has slowly dawned on me that we’ll be maintaining 75 per cent of the plan until our daughter’s second year of university – and a quarter of it will continue to simmer for nearly three more years.
These extra years are encouraging me to squeeze a little more money out of the plan.
Low-risk investing still makes sense to me: Three years is a short time horizon. But I’m staying put in some higher yielding investments and will perhaps add to them if opportunities arise.
Do you have any RESP tips to share? And what is your approach to investing within the plan while your child is enrolled? Let me know at dberman@globeandmail.com.
Subscribe to the On Money newsletter
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for On Money here.
David’s personal finance reading list
Are bonds becoming a better investment for portfolios?
As bond yields rise, some investors may be wondering if they deserve a bigger weighting in their portfolios. Goldman Sachs says it depends on your horizon: Stocks still look more attractive over the next few months as earnings climb. Longer term though, diversifying with bonds could be a good move.
Should I break up with thrifting?
Thrifting is more popular than ever, as shoppers chase dopamine hits while scoring environmental points for keeping old stuff out of landfills. But when we buy too much, or the wrong things, the results aren’t pretty (for subscribers to The New York Times).
Chart of the day
In his weekly mortgage column, Salmaan Farooqui looks at how Canadians’ shift to shorter-term mortgages leaves homeowners exposed to rate hikes and oil price shocks.
New research that caught my eye
Financial complexity, as it applies to your investments, can look sophisticated and modern. But there may be another factor at work, according to a paper in the Review of Finance (hat tip: Abnormal Returns): “Issuers may deliberately redesign investment products when competitive pressure increases, shifting toward structures that are harder for investors to evaluate and compare.”
Anger vs profit: Should you sell your U.S. stocks?
Stress Test, The Globe and Mail’s award-winning financial podcast for Gen Z and millennials, has kicked off its 13th season with a look at whether the Canada-U.S. trade war is changing how young people invest. In today’s episode, we hear from a millennial investor who dramatically reduced his U.S. holdings. Then Rob Carrick speaks to financial planner Aravind Sithamparapillai about the risks and potential benefits of scaling back U.S. investments, and what investors should weigh before making a change to their portfolios. You can find links to where you can listen here.