Resp Analysis

With the cost of tuition expected to grow at a rate of 5% you will require the following amounts to cover the first year costs of education for your children; $7542.59 for William in 13 years and $6841.36 for Cathy in 11 years. When William and Cathy commence their studies you will require the necessary finances to provide half of their first year costs and the same amount plus inflation for the next 3 years of their studies. With your requested rate of return at 8% and inflation holding steady at 5% you can expect to require $28,564.58 for William and $25,908.95 for Cathy. The monthly payments you need to start making now to meet these needs are $106.88 / month for William and $125.18 / month for Cathy.

Start contributing to an RESP for each child as soon as possible. The sooner you start to invest the more your money can grow.

* Make use of the Canada Education Savings Grant (CESG). The Basic Canada Education Savings Grant will give you 20% on every dollar of the first $2,500 you save in your child’s RESP each year. This would reduce your payments to $89.07 for William and 104.32 for Cathy respectively.

* You stand to gain tax benefits by investing in an RESP. There are no direct tax deductions but any gains on your contribution are able to grow tax free until their withdrawal date. Once withdrawn, the money will be taxed at the hands of your children. Since the typical post-secondary attendee has little disposable income the withdrawal would essentially be tax free.

* An individual plan is recommended over a family one. Should one of your children not attend university an individual plan will allow you to take out the money and put in in your RRSP or redistribute it as you see fit. Additionally, in such a scenario an individual plan would save you the trouble of collapsing all of the old government grants as would be required with a family plan; although you would have to repay the CESG and incur taxation of the growth of the funds.