Time for an RESP checkup?

Set it and forget it. That’s an easy trap to fall into after opening a Registered Education Savings Plan (RESP). Simply choose your investments, make regular contributions – being sure to trigger the maximum annual Canada Education Savings Grant (CESG)  – and watch your investments grow.

The reality, however, is there are things to do. You should check an RESP regularly and make adjustments when required. Following are some of the key factors that may call for changes to an RESP.

Monitor education costs

You want to give your child every opportunity to pursue the career of their choice. That choice, however, may change over time – so it’s wise to be prepared financially. Say that a child had always wanted to become a teacher, but in the last years of secondary school changes their career choice to dentist. Based on the 2021/2022 school year, the average annual Canadian tuition for education is $6,693, while the annual tuition for dentistry is $22,731.¹

Other reasons that costs may run higher than expected include pursuing a graduate degree, studying in the United States or abroad, or facing escalating costs for residence or off-campus housing. You need to periodically monitor your RESP to be sure you’re accounting for potentially higher education costs. If needed, you can increase RESP funding or commit other investment vehicles to education savings, such as your Tax-Free Savings Account (TFSA).

Manage the risk level

A typical RESP holds a large proportion of the plan in equities when the child is young. But when a child nears secondary school graduation, you don’t want to risk a plummeting stock market dragging down the value of years of savings. By the time your child reaches their teens, or even earlier, you’ll want to be decreasing the allocation to equities and increasing the allocation to fixed income. The degree and timing of lowering your RESP’s risk level depend on your personal risk tolerance and number of years to graduation.

Marital status changed?

A change in marital status could prompt a subscriber change or the need to coordinate separate RESPs. Say that a single parent with an RESP for their child gets married or now has a common-law partner. That parent can remain as the sole subscriber or add their spouse as joint subscriber.

In the event of separation or divorce, former spouses who had been joint subscribers of an RESP can remain joint subscribers, if they so wish. Or they can have one person open a new RESP and split the existing RESP, with each former spouse as sole subscriber. Other options are available – it all depends on what suits the former spouses. What’s important is to specify the rules about future contributions and withdrawals in the separation agreement.

If you’re forming a blended family, you may have the option to merge existing plans into one family plan. However, if one spouse’s former partner still makes RESP contributions, keeping the plans separate could be more practical. Sometimes the best solution is having a family plan and one or more individual plans. Ultimately, the usual aim is to equalize the RESP amount for each child in a blended family.

Individual RESP or family RESP?

Typically, parents with one child will have an individual RESP, and parents with two or more children will choose the convenience of a family RESP. But the plans have a lot in common, so the choice often comes down to personal preference. If you open a family plan as soon as you have a child, but end up not having more children, the family plan can function perfectly well for just one child. Multiple individual plans can generally meet the same financial goals as a family plan – and you can transfer funds between individual plans, provided the child receiving the funds is under 21.  

There are a couple situations when one plan is the clearer choice, and the main one involves who’s opening the plan. A family RESP must be opened by parents or grandparents of the children, but an individual RESP can be opened by another relative, family friend or anyone. Another situation is when there’s a large age difference between the youngest and oldest child, in which case individual plans may offer more years to make RESP contributions.

¹ Statistics Canada, Canadian Undergraduate Tuition Fees by Field of Study, 2022