We just Wealthsimple-ed the RESP.
For a while, we've been hearing from our clients that RESPs were in serious need of a Wealthsimple Makeover (not the name of our new show on A&E). Today we're proud to announce that we’re launching a whole new version of the Registered Education Savings Plans, which means saving for your kids' education will now be 67% less annoying (that's our estimate anyway).
What's an RESP?
We're tempted to say it's a way to get free money from the government for your child's education. Because it actually is — the government will take money from its coffers to match a percentage of your contributions (more on this later). But it's a lot more than that. And, since it's a government program, it's also a lot more complicated than that.
Technically speaking, an RESP is an account regulated by the government that can be used for one purpose only: to pay for a child's post-secondary education. That education, though, can take lots of forms — university, college, vocational schools, etc.
So How Is The Wealthsimple RESP Different?
Like all of our accounts, we made it elegant, efficient, and geared to make your money work hard for you. Here's how we think our RESP is better.
You Can Register in Minutes Online
You know what doesn’t come to mind when you think of “simple”? Paperwork. And most RESP registration processes involve a lot of it. So we created the first entirely digital RESP registration process. You can open an account from your phone or computer, from anywhere — home, work, the hospital while your child's being delivered if you're feeling motivated. And then digitally sign that (now-not-actually-paper) paperwork. No printers, scanners, fax machines or 85-cent stamps required.
And Yes, the Fees Are Really Low
You may have seen this one coming because keeping fees low is kind of our thing. A lot of small RESP providers only sell mutual funds, which have higher fees and often levy a penalty if you want to exit the plan early (if, for instance, you decide you want to go with someone who has lower fees!). Wealthsimple's RESPs are invested in diversified, low-cost ETF portfolios (more on what that's all about here) according to financial principals that won the Nobel Prize. And we charge only our standard management fee of 0.4-0.5%. There are no administrative, trading, account transferring, or rebalancing fees.
OK, So Tell Me More About RESPs. What Did You Say About Free Money?
Thanks to a program called the Canadian Education Savings Grant (CESG), the Canadian government will match 20% of the money you deposit into an RESP for your child. The maximum the government will contribute on your behalf is $500 per year (which is 20% of a $2,500 contribution.) The government will give you a lifetime total of $7,200 per kid — so if you're not contributing at least $2,500 per year for 14 years (plus another $1,000 in year 15) for each child, you're leaving the government's money on the table.
What Happens if My Kid Decides to Join the Circus Instead?
If little Jackson or Sophia or Katniss decides not to go to college, you can keep the account open for 36 years. Who knows, Katniss might decide getting a degree later in life (after she's done with the Hunger Games) isn't a bad idea. Otherwise, the money can be transferred to a sibling. If there's no sibling, you can close the account, as long as it's been open for at least 10 years and all the beneficiaries are 21 or older. You get your contributions back (you already paid taxes on those) and the government grants have to be given back to the government. The earnings in the account can be withdrawn (and be taxed) or you can transfer up to $50,000 of the earnings to your RRSP tax-free. Again, there are lots of government rules around how and when this can be done. But that’s why we’re here — we navigate the fine print so you don’t have to.
If free money from the government, low fees, and, of course, the possibility that your offspring won't go into debt to get a degree isn't motivation enough, we're not sure what else we can offer. Oh yeah! Your first $5,000 managed for free when you sign up.
Wealthsimple uses technology and smart, friendly humans to help you grow and manage your money. Invest, save, trade, and even do your taxes in a better, simpler way.