A RESP, registered education savings plan, or child education plan is the best way to invest in your child’s educational future
It is a Registered Education Savings Plan, offered by many financial institutions, backed up by the government of Canada to save for your child’s higher education. It comes with with tax-advantaged, and a government grant, great savings idea for better educational future of your kids.
What are the benefits of registered education savings plan?
Major benefits of RESP are:
- Tax-Sheltered Growth – A RESP account is a tax-free account, the growth is tax free, but withdrawals are taxable. Mostly the tax rate is not high enough, because your child’s income falls into a lower bracket, at the time of withdrawals.
- Government Grant – Besides what you contribute, the government also puts extra money into it, which contributes to growth. Expert advice can help you find out how much your child will receive as a government grant.
- Provider Bonus or Growth – Money invested in RESPs grows faster than traditional investments. We can use funds for all educational purposes. You can use the accumulated funds for full-time education, part-time education, or any other mode of learning. It is hard to pool money without RESP Even though it is difficult to spare money for it, RESPs are not enormous investments, giving you the opportunity to deposit small amounts regularly.
How many types of registered education savings plan are there?
We can categorize the RESP into three types.
Individual RESP – As the name specifies, the individual RESP is for single beneficiaries.
Family RESP – A family RESP is, for over one beneficiary, a plan for two or more children. Each beneficiary has access to the entire amount accumulated. Group RESP–Is for one beneficiary, but there may be over one contributor. Multiple family members can contribute to one RESP and save for one child.
Can we transfer RESP?
If your child does not wish to pursue higher education, you may transfer the RESP to another child.
Limits on RESP contribution
A lifetime RESP contribution limit is $50,000, but there is no annual contribution limit on RESPs. Contribute about $2500 a year to maximize your CSEG.
Age limit on registered education savings plan
RESP (Registered Education Savings Plan) is a Canadian education savings program that helps parents and guardians save for their children’s post-secondary education.
The age limit for opening a RESP is not specified by the Canadian government, and anyone can open an RESP for a beneficiary of any age. However, there are certain rules that apply to the contributions and withdrawals from an RESP, depending on the age of the beneficiary.
For instance, if the beneficiary is under 18 years old, they will be eligible for the Canada Education Savings Grant (CESG), which provides a matching contribution of up to 20% of the annual contribution, up to a maximum of $500 per year. Also, the beneficiary can withdraw money from the RESP only for qualifying educational expenses.
If the beneficiary is over 18 years old, they are no longer eligible for the CESG, and there are different rules that apply to the contributions and withdrawals. For instance, the contributions made to the RESP are not eligible for the CESG, and the beneficiary may be subject to taxes on the withdrawals.
Withdrawal Limit
There is no cap on withdrawals for PSE (Post-Secondary Education). But there is limit on the EAP (Education Assistance Payment), which is $5000 for full-time and $2500 for part-time students.
Is RESP a great idea?
RESPs (Registered Education Savings Plans) can be a great idea for parents or guardians who want to save for a child’s post-secondary education in Canada. Here are some reasons why:
Tax advantages: Contributions made to an RESP are not tax-deductible, but the investment income earned within the RESP is tax-deferred until it is withdrawn. When the beneficiary (the child) withdraws the money to pay for their education, the income is taxed at their tax rate, which is usually lower than the contributor’s tax rate.
Access to government grants: The Canadian government provides education grants, such as:-
- Canada Education Savings Grant (CESG).
- Canada Learning Bond (CLB), to eligible RESP beneficiaries.
These grants can help boost the amount of money saved for education.
Flexibility: RESP contributions can be made on a regular basis or as lump-sum payments. The money in the RESP can be used for a wide range of qualifying educational expenses, including tuition, books, and living expenses.
Motivation to save: It is great excuse for savings, specifically for a child’s education, motivate parents or guardians to save more for this important goal.
However, it’s important to note that there are some downsides to RESP as well, such as:-
- Potential fees and penalties for withdrawing the money for non-educational purposes.
- Restrictions on how the money can be invested.
- Government grants are subject to eligibility requirements.
Things to consider before opening RESP account
Eligibility: Make sure you are eligible to open an RESP account. Anyone can open an RESP account for a child, but to be eligible for government education grants:-
- The child must be a Canadian resident.
- Must have a Social Insurance Number (SIN).
Investment options: Consider the available investment options, because it varies according to the provider. Always compare the fees, risks, and potential returns of each option before making a decision.
Contribution amounts: Determine how much you can afford to contribute to the RESP account. There are no annual contribution limits, but there is a lifetime contribution limit of $50,000 per beneficiary.
Government grants: Research the government grants available to eligible RESP beneficiaries, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB).
Withdrawal rules: Understand the withdrawal rules associated with the RESP account. One can only withdraw for eligible educational purpose.
Choose a reputable provider: Research and compare RESP providers to ensure you choose a reputable provider. We have all RESP providers available, let us choose best one for you.
Seek advice: Contact us, Let us help you fulfill your child’s education dreams today.