Registered Education Savings Plan(RESP)
The first thing to understand about education savings is the concept of tax-deferred income growth.
An RESP is a government-registered savings vehicle for education. Just like with an RRSP, any income earned in an RESP is tax exempt until it is withdrawn – allowing your money to stay in the plan and compound over time. Understanding the basics is critical to getting the right start to saving for your child's education. And there's a lot to consider:
- The high cost of post-secondary education
- Knowing how to take advantage of tax-deferred income growth with an RESP
- A variety of government grants that can significantly increase the value of your savings.
Given that almost 70% of new jobs require some education after high school, starting a savings plan now gives children more options for the future. When your child enrols in a qualifying educational program and starts receiving the funds, they will be responsible for taxes, but only on the growth and grant portions of the plan. Because students generally report a low level of income while in school, the amount of tax should be minimal.The introduction of the Canada Education Savings Grant (CESG) program in 1998 has made RESPs more attractive than ever before. The federal government will match 20% of what the subscriber contributes each year to the eligible beneficiary, up to a maximum of $500 per beneficiary per year ($1,000 if there is CESG carry forward room).
Some key features of RESPs:
- Anyone can open an RESP for a child - parents, grandparents, guardians, and other relatives and friends.
- When you contribute to an RESP you become eligible for government grants that can amount to thousands of dollars of free money towards a child’s post-secondary education.
- Money in the RESP grows tax free.
- You can open an RESP for a child as soon as they are born (if both you and your child have a (Social Insurance Number)
- there are no annual contributions limits to RESPs but there is a lifetime limit of $50,000 per child
- A child can be named the beneficiary of more than one RESP. For example parents and grandparents could each open an RESP for the same child; however, the combined total of the two RESPs could not be more than $50,000.
- You can open RESP at most financial institutions.
If you choose to open an RESP, you should choose your RESP provider and the type of RESP carefully to make sure you find the one that best suits your needs. For more information and queries on RESP trust one of the most experienced financial advisor Sarbjeet Gandham .