The biggest advantage of RESPs is compounding interest and the true power of compounding interest is time. That’s why it’s worth it to start as early as you can. Example 1: compounding interest over a time period of 18 years Let’s say you started saving for your son Alfie when he was born.
Full Answer
Are resp programs worth it?
RESPs are pretty well one of the best free money tax free govt programs out there . Paid for my 3 kids post secondary school . Huh, I don’t know why I was told different. I was told it would be taxed and that the 20% matching was something we applied for and would wait to hear if accepted.
What is an RESP and why do I need one?
What is an RESP? RESPs are a powerful education savings tool for parents. Here's why. With the sleepless nights that come with a newborn it can be hard to plan even one week in the future, let alone grappling with how to save up enough money for when that little bundle of joy heads off to college or university in 18 years.
Should you invest in an RESP for your child?
The money you contribute and invest grows tax-free within an RESP. 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. RESPs have long lifespans.
How much should you contribute to your child’s resp?
The sponsor of the plan, usually the child’s parent or guardian, makes a contribution to the RESP. The government then ponies up 20% of that, up to a maximum contribution of $2,500 each year. That’s $500 in free money every year if you contribute the maximum.
Is it worth it to get RESP?
If you're saving money specifically for a child's education, an RESP is almost always the best choice. It allows you to earn grant money that's not otherwise available, and it allows you to defer taxes on any money earned in the account.
Which is better TFSA or RESP?
With a TFSA, you have the flexibility to withdraw and then re-contribute that amount again the following year. With an RESP, withdrawn contributions are not added back to your contribution room and cannot be re-contributed. If you cannot make an RESP contribution in any given year, you can carry over unused Basic CESG.
What are the disadvantages of RESP?
Disadvantages of an RESP The biggest disadvantage of an RESP is that any earnings that are withdrawn but not used for post-secondary education incur a twenty percent penalty, and income taxes must be paid on the money.
What is the biggest benefit of an RESP?
While there are many RESP benefits, the biggest one is the Canada Education Savings Grant (CESG). With the CESG, the government matches 20% of your RESP contributions, up to a maximum of $2,500 a year (just over $200 a month), to get up to $500 in grants each year.
When should you stop contributing to RESP?
Period that an RESP can stay open You can make contributions into an RESP until 31 years after you first opened it. After that time, however, you can transfer savings from other RESPs into a single plan.
How much should I put into an RESP?
RESP Contribution Rules & Limits There is no annual RESP contribution limit. However, to maximize your potential annual CESG grant of $500, it's recommended that you contribute up to $2,500 to your RESP per beneficiary per year. Keep in mind that the lifetime contribution limit for any one beneficiary is $50,000.
Can you lose money in RESP?
The first is that RESPs are no place for risky investments. The second is that, even if you lose money in an RESP, the full amount of the grants is still taxable when you start making withdrawals.
Can an RESP be used for rent?
Fast Fact: RESP money can be used for tuition, accommodation, books or any other expense related to your child's post-secondary education.
Can I use my RESP to buy a house?
As long as the expense can be legitimately argued to be for education, it's acceptable. That means RESP money can be used for much more than tuition, books, and residence. A student could use it to buy needed equipment such as a laptop, desk, or tablet.
How does your money grow in an RESP?
Within an RESP, investment income and realized capital gains earned on your contributions (as the subscriber) generally grow tax-free until the funds are withdrawn by the plan's beneficiary to pay for educational expenses.
Which RESP is the best Canada?
Best RESP Providers in CanadaWealthsimple RESP. Wealthsimple is Canada's top robo-advisor with over $15 billion in assets under management. ... Questwealth RESP. Questrade's managed investment services, Queswealth Portfolios offer RESP plans. ... Justwealth RESP.
Can you cash out RESP early?
RESP withdrawal penalty If you must collapse the RESP before the funds are depleted because your child doesn't go on to post-secondary education or withdraws early, you could face hefty fines. The government portions will be returned to the government, and you withdraw your own contributions without penalty.
Can I transfer from TFSA to RESP?
Transferring Registered Accounts Between Financial Institutions. In general, there are no tax consequences when you transfer your RRSP, TFSA, RESP, or RRIF directly between financial institutions. The transfer can be done in cash or in kind.
Which RESP is the best Canada?
Best RESP Providers in CanadaWealthsimple RESP. Wealthsimple is Canada's top robo-advisor with over $15 billion in assets under management. ... Questwealth RESP. Questrade's managed investment services, Queswealth Portfolios offer RESP plans. ... Justwealth RESP.
Can you transfer RESP into TFSA?
Here's what the advisor recommended: withdraw the entire available PSE balance from the RESP, and shift it into Rob's TFSA account. (As long as there is a beneficiary attending post-secondary school, there are no restrictions on the dollar amount that can be withdrawn as a PSE.)
What happens if I cash out my RESP?
Withdrawing From Your RESP Here are some key things you will have to remember if you decide to withdraw: Government grants proportionate to the amount withdrawn will have to be returned. The lifetime contribution limit into the RESP will be reduced by the amount withdrawn. You will also give up the amount of grant ...
What happens to RRSP when someone dies?
When a single person (including widows and widowers) dies, their remaining RRSP or RRIF balance is fully taxable in the final year. For example, if their final balance is $500,000, nearly half of their account will disappear to taxes. Because of that concern, many people with a sizable RRSP and often high income decide that the RRSP isn’t a good use of their funds. To these people I say, “You are making a mistake.” If you are in a tax bracket where you can get at least a 45 per cent refund on an RRSP contribution, I say take the money today, get many years of tax-sheltered growth, and you can worry about a high tax rate on withdrawals at some point in the future. Depending on the province, this 45 per cent tax rate tends to be in place once your taxable income is above $150,000. While you could make a financial argument that it is possible to be worse off to do an (R)RSP contribution depending on what happens in the future in terms of taxes, given the certainty of tax savings at the front end, I would highly recommend making the contribution.
Is RSP good for Canadians?
While the RSP is generally a positive wealth management tool for many Canadians, there is a time to contribute, there is a time not to contribute and there is a time to withdraw funds. Each situation may create opportunities to maximize your long-term wealth. Choose wisely. Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth advisor ...
Is RSP a good investment?
While the RSP is generally a positive wealth management tool for many Canadians, there is a time to contribute, there is a time not to contribute and there is a time to withdraw funds. Each situation may create opportunities to maximize your long-term wealth. Choose wisely.
Can an older spouse contribute to a younger spouse's RSP?
One reason is that if the younger spouse has a Spousal RSP, and the older spouse still has RSP room, the older spouse can contribute to the younger spouse’s Spousal RSP. This can be done by the older spouse, even if they are older than 71, as long as the younger spouse is below that age.
What is an RESP, and how does it work?
RESPs or Registered Education Savings Plans are a fantastic way to build up savings for your child’s education. With each contribution you make, the government will kick in an additional 20%! (up to a certain limit each year).
Myths and Facts about Registered Education Savings Plans
BUSTED: Yes, you can! Anyone can open an RESP for a child however there are a couple of things to consider.
What are the benefits of setting up an RESP?
Setting up an RESP is a GREAT way to save for a child’s education. Even before you invest the money, you’re guaranteed the 20% CESG (Canada Education Savings Grant) from the government.
RESP Best Practices
Contributing regularly every month is a great way to invest. It may seem painful at first, but eventually, you won’t notice the money coming out of your bank account. In addition, you can take advantage of market fluctuations. When prices dip, you can buy more of your investment at a lower price, increasing the amount of share you own.
What is an RESP and how does it work?
An RESP is a long-term investment strategy designed to let family members and friends help pay for a child’s education. Investments in this account will grow tax-free, and may even qualify for government contributions like the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) — free money towards your child’s education costs.
Types of RESPs
There are three types of RESP plans available, and the right one for your child depends on your family’s structure and needs.
How to open an RESP
Opening an RESP is incredibly easy. In order to open an RESP, you will need to have the SIN number of the child you plan to name as the beneficiary. Then simply visit your preferred financial institution, like your bank or credit union, to open the account. The provider will also be able to help you with the CESG or CLB.
RESP contribution limit
RESP contributions vary depending on your provider. There is no limit to the amount you can contribute per year, but there is a lifetime limit of $50,000 for all RESPs for a beneficiary. This is especially important to keep in mind if there are multiple RESPs open under your child’s name.
RESP withdrawal rules
To withdraw money from an RESP, you’ll have to get in touch with the RESP provider. They will ask to see official proof that the beneficiary is enrolled either full-time or part-time at a recognized post-secondary institution. Once this is confirmed, they will issue the funds, which are referred to as the Educational Assistance Payment (EAP).
What happens to an RESP if it is not used?
Should the child choose not to pursue post-secondary education right after high school, there are a few options.
About the Author
Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.
How are RESPs taxed?
While the money you put in an RESP can grow tax-free, like in an RRSP* or TFSA*, there are important differences. For one, unlike an RRSP, you don’t receive a tax refund when you contribute to an RESP. In that way, they’re like TFSAs.
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.
Why should you open an RESP?
There are many reasons for opening an RESP for a child. Here are just 5:
How do you get the RESP government grant?
RESP providers typically apply for the CESG grant automatically on your behalf. Many institutions notify the government of contributions only once a month, and it can take 6 to 8 weeks for the grant to be deposited in the RESP. However some RESP providers only apply for the grants once or twice a year. Make sure to ask your provider how often the grants will be deposited.
What can a RESP hold?
RESPs can hold all the same investments as an RRSP or TFSA, such as cash, stocks, bonds, GICs, and mutual funds, not to mention foreign investments. But there are strategies to consider. In the child’s early years you might look at taking more risks with a higher share of the portfolio in equities. A low-cost mutual fund or ETF would help with that. Then as your child ages and gets closer to needing the money, lower the RESP’s exposure to equities. A laddered GIC is also worth looking at, especially when rates are starting to rise. Above all, keep it simple.
What happens when a child receives a RESP?
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.
How to open a self directed RESP account?
Simple. The easiest approach is to contact your bank, credit union, online broker, financial planner or robo-advisor and ask them to open a self-directed RESP account. You’ll need some documentation, like your social insurance number, your child’s SIN number and your child’s birth certificate.
How much is a RESP worth?
Parents believe that, on average, their RESP will be worth almost $28,500 when their children need it, a recent RBC survey revealed. But, as most parents start RESPs when their child is 2 years old, their RESP will typically be worth $22,500 by the time their child is 17 — a shortfall of $8,000.
What does Bart say in The Simpsons?
In an episode of The Simpsons, Bart tells a chilling story by a campfire. He points a flashlight at his face and says, “And that is how much college will cost for Maggie.”. Homer then screams in horror. Advertisement.
Can RESP be used for education?
Thinking that all of the money can only be used for education . There are a lot of different ways of using an RESP. “It can be used for education out of the country, apprenticeships. They can be used for any reasonable expense,” she says. Meanwhile, the capital that you have contributed (not the grants or the money made from the grants) can be used for any purpose.
