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RESPs and Budgeting for your Child Attending School this Fall

We often receive questions surrounding the savings aspect of a RESP. There are also many considerations when it comes to withdrawing those funds and budgeting for your child to attend school.  Over the past 24 years, tuition at Ontario Universities has risen over 150% or 6.5% annually, far surpassing the Canadian inflation rate during that same period.  This does not include the cost of housing for students which, depending on the city, can be twice as much as tuition.

First, you need to manage expectations.  Sit down with your child and go over the plan, the costs, and the funds available for their education.  Discuss with them what they will be contributing and what you will be contributing.  It is important to remember that school, especially in the first year, is a full-time job. Some kids may not be able to commit to working very much during the school year and may not be able to earn any extra income until the summer months.

Plan out a budget.  Withdrawn funds from the RESP (Grant and Growth) are taxable to the child while the original contributions in the RESP are non-taxable.  Plan to take the funds out of the RESP over the planned years of education so that taxation is not onerous and to ensure you are not leaving any money left in the RESP at the end of the education period (unless it is a family plan and there are more children who will be attending school). 

Work with your child to create a suitable need and wants budget.  They should be able to enjoy these years, but they should also have some skin in the game if they want to do a lot of the extras.  Make sure to include items like travel, groceries, cell phone, entertainment, rent, utilities, tuition, laundry, and insurance.

If your child has earned any scholarships and is attending school full time, those scholarships will not be taxable. If they are attending school part time or don’t complete their semester/year, those scholarships will be taxable.

Be a voice of reason.  Newfound freedom brings adventures and activities to take part in.  As parents, we want our kids to be responsible and have autonomy, but we also need to ensure they are safe and don’t get caught up in something that could deplete their education funds.  Be aware, communicate, and educate them about scams and fraud.  Work together to make sure their bank accounts are monitored.

If you have questions about RESPs or budgeting, you can reach out to your Financial Advisor.

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