Although more than half of Canadian parents have opened an RESP for their children, sometimes they need to stop contributing because of financial reasons.Ja_inter/iStockPhoto / Getty Images
Good morning. This week I wrote about some of the common mistakes parents make with registered education savings plans (RESPs). With their kids having finished post-secondary school, it turns out there are many things they would do differently.
Not contributing enough is one issue that came up. Although more than half of Canadian parents have opened an RESP for their children, sometimes they need to stop contributing for financial reasons. Pausing can lead to confusion about how much to contribute to maximize the Canada Education Savings Grant.
Globe Advisor spoke with Boedey Vaeth, wealth advisor with the Zentner Wealth Advisory Group at National Bank Financial Wealth Management in Winnipeg, about strategies to help parents get RESPs back on track.
Have your clients ever paused RESP contributions?
Yes. Common reasons include a job loss, parental leave or transferring [financial] institutions. In those cases, the contributions may stop temporarily. I’ve had some clients who manage RESPs on their own, and how much to contribute again becomes confusing.
How do you help clients resume those savings when they’re on better footing?
Having access to what they’ve missed in contributions and grant room is important. If we get an RESP transferred in from another institution, the information about the account transfers over to some degree, but you’re never sure if there was missed information.
To confirm what we’re dealing with, we’ll do a joint call with the Canada Education Savings Program hotline through Employment and Social Development Canada (1-888-276-3624).
The RESP subscriber will need their own social insurance number and also the SIN of each beneficiary. We’ll get an updated spreadsheet on what they’ve contributed so far and what grant room they have.
From there, our next step is working with the clients to put an education budget in place. Then, we can help them allocate the capital to get their contributions back on track.
I make sure they understand they don’t need to just dump in, say, $10,000 in one year to catch up, because ultimately the most grant room they’d receive in that scenario is capped at $1,000 a year. Ideally, you would do enough to optimize a $1,000 catch-up grant.
Are there situations with different subscribers holding RESPs for the same beneficiaries that also contributes to confusion?
Yes, some grandparents will open an RESP for their grandchildren, while parents already have an account as well. They get confused because it’s not like the grant money doubles. But some families are under the impression that if they open up a few, they’ll also get access to more grant room and it doesn’t work that way. If grandparents are putting X amount of dollars away, they might be maximizing the full grant.
Can the hotline help when you’re trying to close the RESP?
It’s been pretty good for that because it will give you information on what’s been paid out. If the child has finished university and the parents want to get the money out of the RESP, we use the hotline to fact-check our numbers just so we know the situation we’re going to run into, what grants may need to be repaid and what the lifetime contribution was for that child.
This interview has been edited and condensed.
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