How to turbo-charge your educational savings

Wondering how to make the most of the money you set aside for post-secondary education? The answer is simple: invest in a Registered Education Savings Plan or RESP. An RESP offers two significant advantages over taxable investment accounts that can help significantly enhance the performance of your money.

RESP advantage #1: Canada Education Savings Grant (CESG)
Each year, for each eligible child, you can earn CESG equal to 20% of your annual RESP contribution up to an annual maximum of $500 and lifetime maximum of $7,200. That’s like getting an instant 20% return on your contribution!

RESP advantage #2: Tax-deferred growth
The investment earnings in your RESP grow tax deferred. Assuming a 40% tax rate, not paying tax on investment earnings means that instead of a 6% after-tax return, you could be earning 10% – a substantial difference. And when the plan's earnings are withdrawn to pay for school expenses, it’s taxed to the student, usually at a much lower tax rate.

RESP advantages really add up
Together these advantages can make an incredible difference to how much you save. Assuming, an 8% pre-tax return, $2,500 annual contribution for 18 years and a marginal tax rate of 40%, you would have $117,840 in an RESP compared to $72,346 in a taxable investment account.