Investment picks and other strategies for maximizing RESPs

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Although a tax-sheltered registered education savings plan is a popular way to build assets for higher education, investment strategies can differ among advisors

Getting the maximum grants requires $2,500 in annual and $36,000 in total contributions. Another $14,000 can be invested in the RESP without matching grants to reach the $50,000 contribution limit.Building a nest egg for post-secondary schooling can be challenging for parents as tuition and living expenses creep higher. Although a tax-sheltered registered education savings plan is a popular way to build assets for higher education, investment strategies can differ among financial advisors.

Getting the maximum grants requires $2,500 in annual and $36,000 in total contributions. Another $14,000 can be invested in the RESP without matching grants to reach the $50,000 contribution limit. One strategy he uses is called “super-funding” the RESP. In a baby’s first year, parents can contribute $2,500 to get the grant as well as a lump sum of $14,000, he says. “Each year after, they make the $2,500 matching contribution .”

A strategy to reduce that tab, he says, could be a mix of taxable withdrawals stemming from grants and investment growth, and non-taxable withdrawals from contributions. “I usually don’t tell people to put more money into an RESP than what’s required for the maximum grant,” Mr. Ferrier says, and how it’s invested will depend on their risk appetite.“I favour bank stocks because, historically speaking, their returns tend to be more predictable and their dividends don’t get cut,” he says. “They have demonstrated a history of growth.”

The note can be sold but otherwise it “steps up” yearly with an interest rate increase – unless it beats a certain hurdle and is called by the bank. For example, Verecan Global Equity Fund holds securities such as Mawer Global Equity Fund, iShares MSCI Minimum Volatility Canada Index ETFVerecan’s Majestic Select Partners Global Income Fund holds fixed-income investments such as PIMCO Monthly Income Fund and BMO Aggregate Bond Index ETF

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