Sending your child to college is one way to give them a bright future. However, this may not be an easy task because it requires you to save up a substantial amount of money. Fortunately, the federal government has set up a number of programs to provide assistance to parents who are facing this problem, one of which is the Registered Education Savings Plan (RESP). Find out how investing in an RESP can help you give your kids a brighter future. You may select your child, grandchild, or relative as the beneficiary.
How the RESP Works
RESP is a smart savings tool that’s specially designed to encourage Canadian parents to save for their children’s future education. As long as you’re a Canadian citizen who has a Social Insurance Number, you can open an RESP account at any authorized RESP provider in your locality.
After setting up your account, you can start making contributions and apply for a government matching grant. The maximum lifetime amount you can contribute is $50,000 per beneficiary. When your child is ready to pursue post-secondary education, they’ll receive educational assistance payments from your RESP.
Top Reasons to Open an RESP Account
The RESP is the most popular post-secondary education savings program in Canada because it offers many benefits over other similar plans. The following are three compelling reasons to sign up for the RESP:
1. Tax Benefits
One of the appealing aspects of the RESP is that it allows the funds you’ve accumulated in your account to grow tax-free. As a result, you’ll be able to save money more quickly. Your contributions won’t be subject to tax until you withdraw them to pay for your child’s higher education. When the funds are withdrawn, the beneficiary is required to pay tax on them, but the amount will be minimal because they’ll be making little to no income at that time.
2. Government Grants
One of the main reasons why it’s wise to invest in the RESP is the access to government grants. So, how much does the government contribute to an RESP? With the Canada Education Savings Grant (CESG), 20% of the yearly contributions you make to your RESP, up to a maximum limit of $500 per year are matched by the government. There’s a lifetime limit on the amount of CESG you can receive, which is $7,200.
Additionally, as an RESP subscriber, you’ll be able to apply for the Canada Learning Bond (CLB), which is an education savings incentive for eligible children from low-income families. This program enables your child to get up to $2,000 in government grant money until the age of 15, which will be deposited into your RESP. There are also provincial grants such as the British Columbia Training and Education Savings Grant (BCTESG), and Quebec Education Savings Incentive (QESI).
3. Investment Opportunities
To make your savings grow faster, consider taking advantage of the wide array of investment opportunities available to RESP account holders, such as mutual funds, bonds, stocks, and guaranteed investment certificates (GICs). Investing in these financial assets enables you to increase the funds in your RESP through capital gains, dividends, and coupon payments. Make sure you choose an investment option that suits your risk tolerance level and goals and read up on it before you proceed. Many RESP providers do the heavy-lifting for you, by investing in the right mix of assets to maximize your gains. Make sure you do the necessary research before you start an RESP.
The RESP is a flexible plan that allows you to save money for your child’s future education in a variety of ways. If you want to maximize the education savings for your child, you should open an RESP as soon as possible.