RESP funds can be used for apprenticeships and skilled trades training.andresr/iStockPhoto / Getty Images
Good morning and happy start to a new school year. Here’s to more traffic.
Earlier this week, I wrote about why age 15 is a key marker for registered education savings plans (RESPs). My husband and I started RESP contributions in the first year our eldest daughter was born. Age 15 seemed a long way off at the time, but here we are – and well into an RESP asset allocation shift.
When we opened the account back then, I recall our advisor mentioning the costs of a four-year university education in Canada would be more than $80,000. (That’s a lot even today, but consider new research from RESP provider Embark forecasting the cost to increase to about $137,000 by 2042).
I don’t remember specifics beyond that conversation 15 years ago, given that shut-eye was increasingly fleeting and, like many new parents, we were focused on the basics, such as feeding and diaper changes.
Still, as parents focus on saving for their kids’ education, many want to know what RESPs are good for, especially if their kids don’t end up going to college or university. And if they do, what does the money cover?
Lori Curtiss, certified financial planner at A Money Maker Mindset in Calgary, says a common misconception is that RESP withdrawals must be used solely for tuition or books.
“As long as the child is enrolled in an eligible program, the funds can be used for various expenses, including tuition, books, rent, a vehicle, or a laptop,” Ms. Curtiss says. “You’re not required to provide proof of how the funds are being spent.”
Tracy Andrade, wealth advisor at Marnoa Private Wealth Counsel in Waterloo, Ont., says some parents don’t realize that an RESP can be used to fund apprenticeship programs and trade schools, as long as the institution and program meet eligibility criteria, including minimum duration and instructional hours.
“Many people underestimate the tool investment that tradespeople make throughout their careers,” Ms. Andrade says.
For example, she notes that a journeyperson electrician might need $5,000 to $8,000 in quality tools throughout their career.
“Tools required for a course or program are considered reasonable expenses,” Ms. Andrade says.
Parents also worry about what happens if their child doesn’t pursue post-secondary education. Ms. Curtiss says she’s never encountered this situation in her 22 years of practising, mainly because of all the available options.
“To be eligible for withdrawals, a program only needs to be at least three consecutive weeks with a minimum of 10 hours of instruction a week, which is typically easy to meet,” she notes. “Also, the RESP can remain open until the child is 31 years old.”
Globe Advisor’s coverage of RESPs continues next week.
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