How Resp can Secure Your Child’s Future?

When thinking of your child’s post-secondary education, it can be a little stressful. How will you be able to afford it? One way is to start an RESP. They are easy to set up, use, and invest in. All parents want the best future for their children and this is one way to guarantee a successful future. With post-secondary costs, saving up now is a smart move so your child can have a head start on his or her future education.

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What are RESPs?

RESPs, Registered Education Savings Plan, are government-assisted investment plans designed to help people afford future education. From the time the plan is started, which can be from birth to 18 years of age, anyone can contribute to this plan. Contributions can go up to $50,000. This amount can be made in a lump sum or spread out over a long period of time. Anyone can contribute, grandparents, parents, godparents, uncles, aunts, and friends.

There are different types of RESPs. Some are only limited by the age of the plan, not the beneficiary.

RESPs are a flexible, tax-deferring plan, made to encourage growth for the best benefit. Anyone who contributes to the RESP will get a tax benefit. Interest payments, as well as any dividend, capital gains that are earned in the RESP, will not be taxable. However, when the amount of funds put into the RESP exceeds the value withdrawn from insurance, it will begin to be taxed.

How Does an RESP Work?

When the child is ready to start his or her post-secondary education adventure, two things are needed:

1. Social Insurance Number (SIN)
2. Proof of Acceptance at a post-secondary institute

If the child has these two things, funds from the RESP can be accessed. If there were any grants given by the government, they would already be included in the RESP. Educational Assistance Payments will start when your child is enrolled in a post-secondary program. Even though either a parent or the child can withdraw the money, it is the child’s responsibility to pay the tax on the EAPs. When the child starts taking funds from the RESP, the child will be taxed on the interest accumulated on the fund as well. To put things simply, the RESP is what is called a “Tax-advantaged account.” That means all gains that happen with the account will not be subject to capital gain taxes or income as long as the money is in the account. Once the money is withdrawn, it needs to be used for an educational expense. Since the child will be a student and have a minimal income, he or she will need to pay little to no taxes.

If your child decides not to go to Post-secondary education, the contributed money will be returned to the contributors and the financial institution. The grant would also be returned to the government and not redeemed. Make sure you confirm the length of time your RESP has been set for, as RESPs can be held open for around 36 years.

The Canadian Education Savings Grant (CESG) is another advantage of an RESP. It is a government program that gives you savings incentives. If your child is from a low-income family, he or she can also receive funds from the Canada Learning Bond, receiving up to $2000 in the RESP.

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Three Types of RESPs

You have a choice of RESPs to choose from, so you can find the best plan for you and your loved ones.

Individual RESP: can be owned by anyone, such as parents, grandparents, or even you. You can save for your own education with this type of RESP. No minimum deposit is needed. If you decide not to go for post-secondary education, you can name another beneficiary for the RESP.

Family RESP: In this type of RESP, there can be more than one beneficiary. They have to be related to the parent, adoption included, and be below the age of 21 when they are added to the RESP. There is no deposit required for a Family RESP. If one of the beneficiaries decides to opt-out of post-secondary education, you can decide how to divide the funds between the remaining beneficiaries.

Group RESP: A Group RESP is different from a family or individual RESP. You don’t have to be related to the child the RESP is for. There is a minimum requirement needed to open this RESP. The amount contributed between multiple investors and the amount your child will receive, depends on the amount of money in the RESP. There are more rules and regulations with a Group RESP than the others, so look over the rules and make sure you understand them before opening a Group RESP.

Save your child the worry of having to pay back a large amount of debt by starting an RESP today. Saving for your child’s post-secondary education is a good investment to secure the future.

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