Why a Registered Education Savings Plan (RESP)?

 
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By Jennifer Clyne

It may be hard to think of your child graduating from university when they’re still in diapers but starting to save early for a child’s RESP can help you build a substantial pool of funds that will help them with the costs of their education. Not only can it help with the costs of university, trade school or other education options, but it can help reduce their debt load coming out of school. Other benefits include free money from the government and starting early means you need to save less.

What is an RESP?

A Registered Education Savings Plan is, like the name suggests, an investment account geared towards saving for a child’s education. Like its tax-shelter cousins the RRSP and TFSA, an RESP allows investments inside the account to grow tax free, meaning no taxes on capital gains and no income taxes on interest and dividend payments. The big benefit with RESPs though, is that the government pays you to save by kicking in a grant of up to $7,200 over the life of the plan (Source: https://www.moneysense.ca/save/investing/resp/what-is-resp-registered-education-savings-plan-explained/).

RESPs are available to Canadian residents and can be opened by parents and/or grandparents for children/grandchildren. You will need to make sure your child has their SIN, as it will be required to open the account.

FAMILY RESP OR INDIVIDUAL RESP?

You can open an Individual RESP (for one child) or a Family RESP (for more than one child). If you think you will have more than one child, often opening a Family RESP makes sense for the following reasons:

·         Saves on annual fees

·         Withdrawal flexibility 

·         Avoids duplication of paperwork

Grants and bonds

1.       The Basic CESG

No matter what your family income is, the government pays an amount of Canada Education Savings Grant (basic CESG) of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

So, for instance, if you contribute $2500, you will receive $500 in grants.

2.       The Additional CESG

If your net family income falls between $45,916 and $91,831, you are eligible for an extra 10% grant on the first $500 of contributions each year.

If your net family income falls below $45,916, you are eligible for an extra 20% grant on the first $500 of contributions each year.

RESP grants by income level

3. The Canada Learning Bond (CLB)

The Canada Learning Bond (CLB) is money that the Government adds to a Registered Education Savings Plan (RESP) for children from low-income families.  

The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:

  • $500 for the first year of eligibility

  • $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15) 

4. British Columbia Training & Education Savings Grant

If you live in BC, the government will contribute $1200 to eligible children who are:

  • born in 2006 or later

  • BC residents

Why should you open an RESP?

1.      Post-secondary educations are only getting more expensive.

2.      Free money in the form of government grants and bonds!

3.      The money you contribute and invest grows tax-free within an RESP.

4.      When your child starts receiving payments from the RESP for school, the money will be taxed at their income, and since students are famously broke, their tax bill will be low.

5.      RESPs have long lifespans (up to 36 years) which gives you a lot of time to save for your child’s education.

6.      A variety of investment options, i.e. stocks, bonds, mutual funds etc.

7.      Family and friends can contribute.

 

Want more info on RESPs? Reach out to us today by calling 1-604-371-0530 or email us at tycuda@leedejonesgable.com.