Pros:
- 1. Pre-fund a big expense: Having a fully funded RESP, parents will have few financial demands when the child starts post-secondary education.
- 2. Tax-free compounding: RESP provides a strong investment incentive for a child’s education and no tax paid on the earnings (capital gains, dividends, and interest). Parents get bonus money from the government for investing in RESP.
What are the benefits of investing in an RESP?
Other RESP-related benefits are available, including the Canada Education Savings Grant (CESG), under which you can access up to $7,200 in the federal government grant and the Canada Learning Bond, which offers up to $2,000 in government funding to your RESP (if you qualify).
What is an RESP and how does it work?
Opening a Registered Education Savings Plan (RESP) allows you to grow your savings for your child’s education with the help of bonuses and grants from the federal and provincial governments. Here’s how RESPs work and why they’re a good idea. What exactly is an RESP?
What are the benefits of having an RESP for your child?
6. Dedicated savings account: RESP gives parents separate savings account for a major financial goal unlike if they mixed this money with other savings account, they may end up spending it on other areas. 7. Keep the child’s focus in school: There are students who work during summer and others during the school year to raise fees.
What is a registered education savings plan (RESP)?
Opening a Registered Education Savings Plan (RESP) allows you to grow your savings for your child’s education with the help of bonuses and grants from the federal and provincial governments. Here’s how RESPs work and why they’re a good idea.
What are some disadvantages of RESP?
However, there are also some drawbacks to the RESP account, such as service costs and a penalty for early withdrawal, that should be considered before opening an account. Overall, the RESP account is a great way to save for your child's future and help them pursue their post-secondary education goals.
What is RESP and its benefits?
A child's post-secondary education can be expensive. Opening a Registered Education Savings Plan (RESP) allows you to grow your savings for your child's education with the help of bonuses and grants from the federal and provincial governments.
What is the purpose of RESP?
What is the purpose of an RESP? An RESP allows you to save tax-free to finance the post-secondary education of your child or a child you're close with. In addition to your savings, you also receive grants from the Canadian and Quebec governments.
Is a TFSA better than an RESP?
While a TFSA is not specifically designed as a retirement savings account, its flexibility potentially can make it an excellent complement to an RRSP. If you have already maximized your RRSP contributions, then a TFSA may be an option for you to save more money and get the benefits of tax-free growth and withdrawals.
What happens to RESP money if not used?
When you close an RESP without using it for your child's education, you must: Pay taxes on the money the investment has earned. Return any Canada Education Savings Grant money. Note: If a sibling has grant room available, you may be able to use it for their education.
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.
How much should I put in my RESP per month?
How much you should put in your RESP per month depends on your income and saving goals. You must contribute $208.33 per month or $2,500 per year to receive the maximum Canada Education Savings Grant (CESG) of $500.
Can I withdraw from RESP anytime?
You can withdraw your original contribution amounts tax-free at any time.
Can I use my RESP to buy a car?
The money will be paid out as educational assistance payments (EAPs), which consist entirely of funds from government grants and the income generated by the money saved in the RESP. They can be used to pay for tuition, textbooks, housing, a car, etc.
How much RRSP should I have at 45?
This is especially important if you've pushed your retirement savings aside to focus on other things in past years. At age 45, you should have four times your annual salary saved up for your future already.
Where should you put your money?
Compare rates before you open an account to ensure you maximize your savings.Savings Accounts. ... High-Yield Savings Accounts. ... Certificates of Deposit (CDs) ... Money Market Funds. ... Money Market Deposit Accounts. ... Treasury Bills and Notes. ... Bonds.
Do you have to pay tax on RESP?
You do not get a tax deduction for the money you put into an RESP. The money that your investment earns while it is in the RESP will not be taxed until money is taken out to pay for your child's education. Money paid out of the RESP as an Educational Assistance Payment is taxed in the hands of the student.
Can I withdraw my RESP anytime?
You can withdraw your original contribution amounts tax-free at any time.
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.
When can I withdraw RESP?
You can start withdrawing funds from your RESP for educational purposes as soon as your child has graduated high school and has officially enrolled in a qualifying post-secondary educational institution.
What is an RESP simple definition?
A Registered Education Savings Plan (RESP) is a special savings account for parents who want to save for their child's education after high school.
What are the pros and cons of a RESP?
Pros: 1. Pre-fund a big expense: Having a fully funded RESP, parents will have few financial demands when the child starts the post-secondary education. 2. Tax-free compounding: RESP provides a strong investment incentive for child’s education and no tax paid on the earnings (capital gains, dividends, and interest).
What is taxed on a RESP?
1. Taxation on withdrawal:All government grants and income earned on RESP account is taxed once the money is withdrawn from the account to pay for education. 2.
What is the tax penalty for withdrawn money from a RESP?
Income tax for non-education expenses: Any amount of money withdrawn from the RESP account and not for education-related expenses incurs an income tax plus an additional penalty of 20%.
Do you have to pay taxes on RESP?
4. No tax deductions: Contributors do not receive any tax deductions for the investments in RESP. no taxes due until funds are withdrawn to pay for the child’s education.
Does the government sponsor RESP?
The government sponsors these plans by contributing a certain amount of money to children under 18 years. The RESP only contributes for post-secondary education programs. Before you rush to open an account with this investment tool, consider the following pros and cons.
What is investment in RESP?
Investment An item of value you buy to get income or to grow in value. + read full definition. earnings. Earnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments. + read full definition. as long as they stay in the RESP.
How does the federal government add to your RESP?
1. Government grants. The federal government adds to your RESP savings each year through the Canada Education Savings Grant. Lower-income families may also qualify for the Canada Learning Bond. If you live in Quebec, Alberta or Saskatchewan, you may also be eligible for a provincial grant. 2. RESP savings grow tax free. You don’t pay tax.
How long can a RESP account stay open?
This lowers the tax that you owe. + read full definition. can stay open for up to 40 years.
How long can a child keep a RESP account?
RESP accounts can stay open for 36 years. If your child chooses to defer their education plans after high school, they can still use the RESP money when they are ready to go back to school. But check the rules of your RESP to make sure there are no restrictions on waiting to continue their education.
Can friends contribute to a RESP?
Friends and family can contribute. Anyone can set up an individual RESP for your child – not just you. Your child’s RESP can grow more quickly with contributions from friends and family. Consider encouraging monetary gifts on special occasions to contribute to your child’s RESP. 6.
What are the benefits of contributing to an RESP?
Contributing to an RESP allows you to grow your savings tax-free. What’s more, since this money is intended for a child, the taxable portion of the withdrawal will be allocated to that child, at a much lower tax rate than yours.
What exactly is an RESP?
A Registered Education Savings Plan is a savings vehicle that allows you to put money aside for your children’s post-secondary education or to save for your grandchildren or other relatives. The way it works is quite simple.
How long can you keep a RESP open?
You can also keep the plan open in case the beneficiary changes their mind. Remember that an RESP can be kept open for up to 35 years.
How long do you have to use RESP funds?
You have until the end of the 35th year after the RESP was first opened to use the funds, unless your agreement stipulates otherwise. This allows the child beneficiary to take a break from school and work or travel before continuing their education if they so choose—the funds will be awaiting for them for when they decide to go back to school.
What is a RESP for education?
Tuition, school supplies, food, housing… A child’s post-secondary education can be expensive. Opening a Registered Education Savings Plan (RESP) allows you to grow your savings for your child’s education with the help of bonuses and grants from the federal and provincial governments. Here’s how RESPs work and why they’re a good idea.
How much is the lifetime limit for a RESP?
Each beneficiary receives a CESG of 20% on the first $2,500 of annual contributions to their RESP, up to an annual maximum of $500. The lifetime limit is $7,200 per beneficiary.
What is an individual RESP?
An individual RESP, as its name suggests, is for a single beneficiary. This type of plan is ideal for godparents or other important figures in a child’s life, since it does not require a direct relationship with the beneficiary. Here too, you can choose the type of investment you want to hold in your plan.
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.
What are the advantages of RESP?
1. Your contributions are matched. By and large, one of the biggest advantages to an RESP is that your contributions are matched by the government.
Is a RESP a savings account?
An RESP isn’t a requirement in order to put money aside for education costs—you could just as easily open up a high-interest savings account or even a tax-free savings account. But there are a few key benefits to an RESP that might make this the best savings account for you. Take a look below for an overview of the advantages of using an RESP.
Can aunts contribute to RESP?
They say it takes a village to raise a child—and the same is often true when it comes to saving for college tuition. The good news is that there are no limitations to who can contribute to an RESP (or when). Aunts, uncles, grandparents, or even family friends can make deposits throughout the life of the account.
Common advantages of Holding a RESP at a Bank or Credit Union
You can speak with someone who already knows (or should know) a bit about your personal financial situation.
Some Disadvantages to Holding a RESP at a Bank or Credit Union
You can’t always choose a mutual fund that has a low management expense ratio and that holds the type of assets that you would like. For example, you might not be able to buy a mutual fund that replicates the performance of the TSX with a low MER.
What is a RESP?
Key Takeaways. A Registered Education Savings Plan (RESP) is a college plan sponsored by the Canadian government. Subscribers to an RESP make contributions that build up tax-free earnings for paying for higher education. In addition to parental contributions, the government contributes a certain amount to these plans for children under age 18.
What is a RESP account?
A Registered Education Savings Plan (RESP) lets parents in Canada begin saving for their children’s education at birth, with the government pitching in part of the tab. Parents or guardians simply walk into a bank, credit union or other financial institution to open up an account. Anyone can contribute, whether it's mom, dad, neighbor, or a favorite aunt or uncle. 3
What Is a Registered Education Savings Plan?
A Registered Education Savings Plan (RESP), sponsored by the Canadian government, encourages investing in a child's future post-secondary education. Subscribers to an RESP make contributions that build up tax-free earnings. 1 The government contributes a certain amount to these plans for children under age 18. 2
How long does it take to get a grant back from a RESP?
If a child doesn't pursue an approved post-secondary education training program within 36 years of opening the account, the government can request the grant money back. There are penalties and income tax incurred on investment earnings that are withdrawn from an RESP and not used for college or vocational school.
Can you use RESP for college?
There are penalties and income tax incurred on investment earnings that are withdrawn from an RESP and not used for college or vocational school.
Is a RESP tax free?
At that time, contributions made into the RESP are returned tax-free, although contributors’ earnings from the plan are taxed. The money the government pays out is taxed to the students. However, since a large number of students have little to no income, many can withdraw the money tax-free. 1 .
