Make the most of RESPs and TFSAs

Funding education

Integrating the best strategies to boost growth potential.


With the ever-rising costs of post-secondary education, saving for a child’s future is a top priority for many families.

At the basic level, both Registered Education Savings Plans (RESPs) and Tax-Free Savings Accounts (TFSAs) boast a number of fundamental benefits. The former offers tax advantages, income splitting, and contribution matching by the federal government, and the latter offers tax-free growth, anytime withdrawals, and a carry-forward of contribution room. The real strategizing, however, exists beyond the surface level in the growth potential within each.

A simplified approach to RESPs

With the ever-rising costs of post-secondary education, saving for a child’s future is a top priority for many families. And given the fact that the maximum lifetime contribution amount for RESPs is $50,000, but the current cost estimate for a four-year post-secondary program is approximately $80,000 (tuition, living expenses, books, etc.), the question becomes how to maximize growth in the most effective, time-efficient manner possible.

Unfortunately for some individuals, there is a lot of untapped potential within their RESPs, and this can often be based on uncertainties around asset allocation. With a number of options to consider (equities, mutual funds, bonds, to name a few), and the time-consuming nature of trying to strike the right balance between risk and growth, the investing process can become complex and confusing, especially given the shorter time frame — unlike RRSPs where the investments have decades to grow. This is where target date funds can come into play as an ideal, convenient strategy.

On the highest level, target date funds are asset mixes managed to a specific time horizon. What makes them such an attractive option for RESPs is the fact that investors simply have to choose the fund with the target date that aligns with the year their child would likely begin post-secondary education, and the asset mix is designed to evolve in a way that capitalizes on that time frame. Specifically in this regard, the RBC Target Education Funds provide an ideal option based on structure, purpose, and impact — these funds are customized to meet the dates relevant to your child’s post-secondary education timeline, they rebalance automatically, and they provide the reassurance that the rest is taken care of, eliminating a need for year-to-year management.

As part of the sophistication within these funds, the focus in the earlier years is progressive growth, and then as the target date becomes closer, there’s an asset mix shift to preserving capital via lower equity exposure (see Figure 1). And while this strategy may be similar to what some individuals aim for by self-directing their RESPs, the added value of funds such as RBC’s Target Education Funds is that the complexity of planning and management is taken out of the hands of the investor and put into the hands of expert portfolio managers who select the funds, monitor the portfolios, and adjust the asset mix for you.

For those who are very conservative in their investment approach, GICs are another alternative. The tradeoff with that option, however, is that it’s more difficult to build capital in a low-interest-rate environment. Ultimately, you want to ensure sufficient investment growth to keep pace both with inflation and the rising costs of post-secondary education, so it’s important to focus on growth of capital, not just on the preservation of that capital.

Figure 1 – Asset mix becomes more conservative over time

Source: RBC Target Education Funds Brochure (22056 (03/2015))

Take TFSAs to the next level

While a recent Ipsos poll conducted on behalf of RBC noted an increasing popularity in the TFSA program (46 percent of Canadians would choose a TFSA over an RRSP if they could only choose one),1 as a whole, TFSAs are still somewhat misunderstood among some individuals, specifically around what can be held in them. While the name suggests that it is a savings account, a TFSA can in fact be utilized for investments including GICs, bonds, stocks, and mutual funds. Therefore, a shift in focus to using it more as a longer-term investment vehicle opens up a range of options that can positively impact the growth potential.

In this regard, a key strategy to consider is investing in funds that are properly diversified to deliver consistent and reliable returns, and it’s here that options such as RBC’s Select Portfolios may be worthwhile, as they offer broad global exposure to both bonds and stocks, which is important in today’s more volatile market environment. As part of this option, there are five RBC Select Portfolios offered based on risk tolerance, each of which is monitored and actively rebalanced with a focus on tactical adjustments to capitalize on short-term opportunities while still keeping long-term strategic allocation at the forefront.

For both RESPs and TFSAs, an advisor is the ideal resource to discuss some of the finer intricacies relating to investment strategies, as well as identifying the best options based on personal risk tolerance and short- and long-term goals for the contributions made.

TFSA yearly contribution limits

While the federal government has reduced the 2016 annual TFSA contribution limit back to $5,500, those who didn’t capitalize on the 2015 limit of $10,000 can still utilize it. Thanks to the contribution carry-forward rules, any unused contribution room accumulates each year.


  1. Ipsos Press Release. January 27, 2016.

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliates. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licensed representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc. and the private client division of RBC Global Asset Management Inc., Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason.

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