5 RESP Tips Every Parent Should Know
A parent’s foremost worry is their child’s future. So secure it with the right investment.
RESP is one of the most important money-saving investments you can make. It is an investment geared towards saving for a child’s education.
You may know the basics of RESP and how it can help you. However, there are some things few parents know about, but all parents should know.
Here are five tips to help you with your investment.
Maximize the Government Grants
RESP contributes 20% of your contribution as Canada Education Savings Grant (CESG) up to CA$2,500 per year. This means that your annual grant entitlement is $500. Take full advantage of the CESG to contribute at least $2,500 every year until your child turns 17. The maximum amount of awards you can receive in a lifetime is CA$7,200.
You can tap into up to $3,200 of free money through the Canada Learning Bond and British Columbia Training and Education Savings Grant. This depends on your child’s age and your net family income.
Carry Forward the Unused Grant Entitlement
If you fail to contribute the amount to get the grant in the year, you can carry forward the unclaimed grant. This flexibility makes it easier for you to save as and when your income increases. However, since the maximum grant payment you can get in a year is limited to $1,000, it may take up some time to get back on track.
Get Help from Friends and Relatives
Grandparents, aunts, uncles, and friends can also contribute to your child’s RESP to help reach the annual $2,500 contribution needed to maximize this grant. The more you contribute, the larger the grants you can get.
Save up to the Maximum Contribution Limit
The maximum lifetime contribution limit of RESPs is CA$50,000 per beneficiary. You may need only $36,000 to get the maximum CESG of $7,200. However, saving up to the $50,000 limit can maximize tax-benefits and the compounding growth of investments.
This can prove to be of great help as the cost of education keeps growing every year. It is advisable to save as much money as possible without over-contributing.
Plan for Tax Benefits while Withdrawing Your RESP
It is advisable that you structure your withdrawals in a way that reduces taxes. When your children enroll in a post-secondary institution, get them to withdraw the cash as Educational Assistance Payments (EAPs). The EAPs are usually taxable but at a low rate because students have no income.
And since the withdrawals of contributions are non-taxable, you can effectively spread them out to pay no tax.
Feel free to contact us to learn more about RESP and how to make the most of it.