6 Reasons to Start an RESP Today

To save parents from the from the financial burden that comes with a child’s post secondary education, the government of Canada encourage parents to invest in a tax-deferred scheme known as Registered Education Savings Plan (RESP).  What other benefits comes from taking advantage of this solution?

Here are 6 reasons to start a RESP today if you haven’t done so.

1. Government grants

Back in 1998, the Government of Canada introduced the RESP tax-deferred savings plan to encourage Canadians parents to save for their children’s education. For every dollar you contribute to this savings, the Federal Government adds 20 cents – up to $500 every year – under the program known as the Canada Education Savings Grant (CESG).

You have a guaranteed 20 percent return on your first $2,500 of RESP savings each year. What is more, for every child, the total contribution from the Canadian government under the CESG amounts to a lifetime maximum of $7,200.

Families with lower income may also be eligible for the Canada Learning Bond. If reside in Alberta, Quebec, or Saskatchewan, you may also qualify for a provincial grant.

2. Different investment options

Just like TFSAs and RRSPs, you can choose from a variety of investment options inside an RESP that best suit your investment objectives and time horizon. These options with which you can save your hard-earned money include bonds, mutual funds, stocks, ETFs, as well as GICs. It is worthy of note that unlike others, RESP is a risk-free investment option.

3. Your RESP money grows tax-free

Unlike TFSA and RRSP, capital gains and interest earned inside an RESP are tax-sheltered during the contribution period. In other words, they are not taxable until withdrawn. This helps your savings to grow even faster since you are getting the full advantage of compound growth for many years.

4. RESP withdrawals are taxable in the student hands

When you enroll your child in a post-secondary education, you or your child can start making withdrawals from an RESP and this is known as Educational Assistance Payments (EAPs). Withdrawing your contributions is not taxable since they are considered as a refund.

However, government grants and any capital gains and interest earned inside the RESP are subject to tax in the hands of the RESP beneficiary in the year withdrawals are made. Taxes on RESP withdrawals are usually at a much lower rate due to the student’s low income and high exemption status.

5. Family and friends can make contributions

Not just you alone, but anybody can have an RESP savings plan opened for your child/children and then contribute to it. This open scheme allows for grandparents, aunts, uncles and friends to save for the education of your children. As a matter of fact, contributions towards an RESP can be given as a birthday monetary gift to your child from friends and family members.

6. RESP reduces parent’s financial burden

While an RESP helps parents invest in their children’s education costs, it also helps minimizing or eliminating the financial responsibility that comes when your children starts their post-secondary education. This will also prevent the financial stress that comes when there is a need to make sudden large payments that could affect your household budget when tuition and other mandatory payments are due.

If you search Knowledge First reviews, you’ll see testimonials from customers and students who we have helped in saving for post-secondary education through RESPs.

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