What to do with RESP if child doesn’t go to post-secondary school

Financial planning for you and your family can be overwhelming with all of the options.

Dave Schurman of FirstOntario Credit Union joined Bob Cowan on Morning Live to take the confusion out of investing.

Here are his answers to common questions about savings plans.

Can we open a Registered Education Savings Plan (RESP) before our child is born? Also, what happens to the RESP if the child does not choose to go to post-secondary school?

You cannot open an RESP until you have a child because the kid will be the beneficiary, Schurman said.

“You could start a savings account, even a tax-free savings account, in your own name,” he said. “Then transfer it to the RESP. But once the child is born, the RESP is certainly the best option to save for a child’s education.”

The two primary reasons to choose an RESP are that it grows tax-free until the child is going to need it and the government provides a grant on your contributions every year.

If your child delays going to post-secondary school directly after high school, Schurman said to not worry because an RESP can remain open for 36 years.

He also noted that the money in an RESP can be used for all types of education, including full-time or part-time university, college, trade school and training courses to upgrade skills, among others.

If your child never attends post-secondary school, Schurman said parents can transfer the contributions to another child, tax-free to a registered retirement savings plan (RRSP) or returned to you, tax-free. The government grant portion will be returned to the government and parents will have to pay taxes on the money earned.

What can you do with a group RRSP from a former employer? I received a statement of how  my group RRSP has been performing. I would greatly appreciate some options on what I can and should do with these funds.

Schurman said a group RRSP is similar to an individual RRSP except that it is established and administered by an employer for a “group” of employees.

“Group RRSPs are not locked-in,” he said. “You can leave the funds in the group RRSP, take the contributions in cash but pay tax, transfer to an individual RRSP or RRIF, or transfer to your new pension or RRSP plan if you are allowed.”

My employer has a group RRSP plan. I contribute three per cent of my income and they match it. If I want to contribute more, they will also match 50 per cent on the next two per cent. I’m being solicited by the fund provider to also make additional contributions, but the employer doesn’t match. What should I do?

Schurman said to contribute to your limit on everything that your employer matches at 100 per cent and at 50 per cent. 

“Some employees do not take full advantage when the employer does not match 100 per cent,” he said. “It’s free money to you. The 50 per cent matching is like getting an immediate 50 per cent return on investment, tax free.”

If you have a question for Schurman, email him at FinanceFriday@FirstOntario.com or message him on Twitter at @Finance_Friday. If your question or topic is selected to be covered on air, you will win tickets for the Hamilton Bulldogs and a gift card from a local business in your community.