In this day and age, as we get older, we must take into priority our future and make the necessary arrangements for it. However, for most of us, the future doesn’t mean just ours but that of our children as well. Planning for tomorrow means ensuring that our kids can get the education that they deserve and build a career for themselves as we retire. If you’ve been pondering over these thoughts, and have been looking for a way you can do so, there is no better option out there than RESP.
What is RESP, and how does it function?
RESP refers to Registered Education Savings Plans, which is a plan formulated by the Government of Canada that helps parents save for their child or children’s future education.
Through it, your kids will be able to receive regular payments, referred to as Educational Assistance Payments (EAPs) as they pursue higher education in colleges and universities. It ensures that your kids will not have to worry about resources and will be able to focus on making their career dreams come true.
There is a regulatory cap of $50000 for every child, and you can decide whenever you want to put money into the plan. However, some plans may need you to put in money periodically. You can start an RESP account at any financial institution or bank. There are various types of RESPs as well, which includes Individual, Family and Group RESP.
Benefits of having an RESP
There are some significant advantages of getting an RESP, even those that you can enjoy later on like-
- Significant tax benefits – RESPs act as a tax shelter for the students who will be withdrawing the money. The amount that you placed in the RESP will grow entirely tax-free, till the time they are withdrawn. Even when they are taken out, little to no tax will be levied on it since the person to do so will be a student, who’ll be either on a low or zero tax bracket. Thus, throughout their college education, your children will have access to ample financial resources.
- Government grant – Another fantastic feature of an RESP is that according to the Canada Education Savings Grant (CESG), the Canadian government will match your contributions upto 20%, to a maximum of $500 per year and $7200 per child in a lifetime . Children who come from lower-income families can receive even more under other provisions of the same RESP grants.
- Flexibility of contributions – The RESP is one of the most flexible savings plans out there, not only in terms of how you contribute but who can contribute as well. In most cases, you can put money into the Registered Education Savings Plan as and when you wish, according to your convenience. However, in some situations, you may be required to make contributions either monthly or annually. There are also numerous ways that you can invest in RESPs, such as in the form of mutual funds, stocks, bonds and more.
There are also no steadfast rules regarding the relationship of a person to the beneficiary if an RESP account is to be opened. Anyone can start and contribute to a student’s RESP whether they are a parent, a relative, or a well-wisher. This is another excellent feature of RESP.
- Transfer to RRSP- The RESP is hugely beneficial to its contributors as well, as it allows you to transfer any unwithdrawn amount on the plan to your RRSP, or Registered Retirement Savings Plan. In case your child has decided not to pursue post-secondary education or hasn’t withdrawn all the amount in the plan, you can put that remaining amount in your RRSP. The only requirements to do so are that the RESP must be at least ten years old and that you must have some contribution in the retirement savings plan already. Also, all the named beneficiaries of the RESP must be 21 years old or above during the time.