Which funding strategy should I use for my child's RESP?

Many affluent Canadians take advantage of RESPs (Registered Education Savings Plans) to fund their children’s future education expenses. These accounts have tax advantages and can help preserve wealth. When an RESP is opened, there are typically two approaches when it comes to funding the account: a lump sum contribution or maximizing annual contributions. This informative video covers these two funding methods and highlights a few benefits of each.

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Video transcript

When it comes to funding an RESP, high net-worth Canadians typically have two approaches:

  • Contributing a lump sum amount, or 
  • Maximizing their annual contributions 

Lump sum contribution

This is when someone deposits a significant amount of money into the plan in a single transaction. 

If you put a large, one-time contribution into an RESP, it can grow faster thanks to compound interest. By the time the beneficiary reaches post-secondary education, there could be more money in the account. Depending on the province in which you live, a lump sum contribution may also have the benefits of government grants and allow you to take advantage of potential tax benefits.

Maximizing annual contributions

This means that each year you invest the annual contribution limit that is set by the government.

This strategy helps to take advantage of government grants, such as the Canada Education Savings Grant. Doing so can boost your savings for educational expenses. 

Which strategy is right for me?

By making regular contributions, you can establish a disciplined savings habit and ensure a steady accumulation of funds. Ultimately, the decision between lump sum contributions and maximizing annual contributions depends on your specific financial goals, risk tolerance and overall financial situation. 

Talking to a professional is recommended when deciding which strategy is right for you.