To be eligible as an RESP beneficiary, a child must be a Canadian resident aged 17 years or younger by the end of the calendar year in which parents wish to make a contribution, and must also have a social insurance number.
The Canada Education Savings Grant (CESG) is money given to families with RESPs to help further boost savings. For every $100 placed in an RESP, the government provides $20 in CESG money, meaning a maximum grant contribution of $2,500 a year will net $500 in free funds, noted Vaz-Oxlade.
"Imagine you're walking along the road and there's a $20 bill lying in the middle of the street. If you wouldn't step over it and keep going, then you're going to open up an RESP. Because what you're not doing is you're not going to leave that $20 sitting on the table because the government wants to give it to you."
In her latest book, "Saving for School" (Collins) Vaz-Oxlade brings her no-nonsense approach to RESPs, sharing tips on how to select the right plan and ways to save for the post-secondary nest egg.
— Assess which plan is the best fit. "An RESP is a great product. Where you buy it determines how good of a product it is for you. So really, this is a matter of choosing the right institution," said Vaz-Oxlade. "Keep in mind that every financial institution sets its own regulations for how you can use your RESP money, but you can transfer the plan."
She recommends setting up the RESP where fees are low and the organization seems to be stable, and to make regular contributions.
As for the type of plan, Vaz-Oxlade advises steering clear of group RESPs — sometimes called scholarship trusts — because they are very high in fees and restrictive about their use. She also urges parents to open an individual RESP for their first child to avoid the RESP expiring with the money still in it, which occurs after 35 years.
And she suggests a family plan, which is almost identical to the individual RESP except more than one child can be the beneficiary.
— Determine if you have ample time allotted to contribute. Is your child months or a year away from starting college or university? Then it's too late to capitalize on the RESP, said Vaz-Oxlade.
"The thing about an RESP and the grant money is that the earlier you start, the more of the grant money you can get. If you wait too long, you will lose that free money."
— Finding the funds. Vaz-Oxlade said she often has people tell her they don't have money to save — and she's very hesitant to actually believe them.
"I see people spending lots of money on coffee, lots of money on lunch, lots of money on bright and shiny and new. And what I think to myself is what people are really saying is they don't want to stop spending their money."
In her book, she outlines various suggestions to find as little as $2, $5 and $10 a day to save.
Vaz-Oxlade recommends brown-bagging lunch for work for at least four out five days and depositing the money saved. Loved ones can also help.
"Lots of times, parents, grandparents, aunts and uncles, they want to know what to give your kids, " said Vaz-Ozlade. "Toys are great, clothes are great, but give me $20 towards my kid's RESP as well, and let me get the whole family in. That's how you make up that contribution room so you can get the maximum grant."
— Get kids to chip in. "It's really important that kids have some vested interest in going to school, paying for their own tuition. I don't believe that parents should foot the bill completely with children having absolutely no responsibility," said Vaz-Oxlade.
"I think a great way to initiate that is to have those discussions when kids get their first jobs about how much they're going to be saving from every paycheque for school."
— Ready to withdraw funds? Be mindful of the limitations. Vaz-Oxlade says the money from an RESP comes out in one of two ways, the first being the post-secondary education payment. There are no restrictions on the amount that can be withdrawn, and there are no taxes to be paid on the money since no deductions were made when it was deposited. The only caveat is that children must still be enrolled in school to ensure CESG money isn't affected.
The second way is the non-contribution amount which comes out in the form of an educational assistance payment. Only up to $5,000 can be withdrawn in the first 13 weeks of full-time enrolment. After that, there's no limit, but the withdrawals are now taxed in the child's hands.
Even after the child has left school, parents will have up to six months to withdraw the remaining funds out of the RESP provided it meets the criteria, she noted.
"For example, if you paid for your child's rent while they were at university or college and then for whatever reason they leave school, you have six months to take that money back out of the RESP and pay yourself back."
— Dealing with debt. Even after pinching pennies and budgeting, there is still a possibility some may need to borrow money. Vaz-Oxlade said the rule of thumb is that over the course of a student's school career that their debt should not exceed more than the first year's income they'll earn.
If you have an undergrad degree, your goal should be to be free from student debt within five years, she added.