In order to encourage Canadians to set money aside for their children’s education, the Canadian government launched RESPs in 1974. In essence, an RESP is a sort of investment account that enables you to generate investment returns that are tax-sheltered. The Canadian Education Savings Grants, or CESGs, were further introduced by the government in 1998 and promise to match 20% (up to $500 annually) of your RESP contributions. If those arguments aren’t persuading enough for you, consider these additional 4 detailed justifications for starting an RESP right away:
RESPs serve as tax havens
RESPs are tax-sheltered investment accounts, as we said above. These are also frequently referred to as “tax-advantaged,” which means that the CRA will provide Canadians a tax benefit in exchange for them saving for their children’s post-secondary education. You don’t have to pay tax on capital gains and interest income, similar to a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), so long as your investments aren’t withdrawn before retirement.
The investment gains removed from an RESP are taxed if your child uses them for living expenses, books, or post-secondary tuition. The cumulative income is, however, taxed at the student’s tax rate, which is ordinarily lower than the parent’s rate.
You get free money from RESPs (for real)
The government will match 20 cents of every dollar you put into your child’s RESP up to a maximum of $500 annually ($7,200 throughout the course of your plan). Pretty amazing, no? Without even taking into consideration the growth of your capital, that amounts to a guaranteed 20 percent return on your investment. Lower-income families may be eligible for the Canada Learning Bond in addition to the federal government payments mentioned above. Additionally, you can potentially be qualified for additional provincial subsidies if you reside in Quebec, Alberta, or Saskatchewan.
You can invest your money with RESPs
You can choose how you want to invest the money you put into an RESP, which is a major benefit. So, you can invest in mutual funds, ETFs, GICs, equities, and bonds while thinking about your RESP. Even if you’re preparing for retirement, you’re not certain your child will need the money.
Not certain about post-secondary education? Don’t panic; an RESP can stay open for 36 years even if your child doesn’t use the funds for education. Therefore, you can frequently move the money to another child or to your RRSP without incurring any fines or unpleasant taxes if your child hasn’t finished post-secondary school by then.
Establishing an RESP account now
We believe you will agree that there are numerous benefits to RESPs, including the fact that they are an excellent method to invest your hard-earned money no matter what the future holds.
When it comes to RESPs, the one decision you must make with care is where to start the account. Always open an RESP for yourself or your family, where there are no restrictions on ongoing contributions. You need to avoid group RESPs Company. Unfortunately, a large number of Canadians continue to invest in obsolete financial products like these RESPs each year. Group RESPs frequently have excessively rigid requirements that could result in you losing all of your investment earnings and government assistance. They also frequently have needlessly high fees and low investment returns.
When you decide where to start your RESP, you need to start saving money. Similar to a Registered Retirement Savings Plan (RRSP), you shouldn’t begin making contributions to an RESP if you have credit card debt or if you don’t have enough money saved up for emergencies. It’s okay if you’re not quite ready to begin your RESP savings right away. You can make up any unused years by receiving grants for one year per year. For instance, a $1000 gift that matches a $5,000 donation
Now that you are knowledgeable about RESPs. So, you can start. All you’ll need are the beneficiary and your own Social Insurance Numbers (SINs) (the child). Ready to start an RESP right away? Build your financial plan now and take a few minutes to determine the precise amount you should be paying into your RESP each month.