Benefits of RESPs
Investing in your children’s education should be a priority. To have a post-secondary
education, it means they will be less likely to be unemployed. Additionally, their income will
be significantly higher than that of an individual with a high school education or less. As
parents, we all want our children to get the best education possible.
By investing in an RESP, the savings grow tax-free and the government also contributes to
the account, which ensures the savings grow faster that in any non-registered savings
account. Below mentioned are the benefits of RESPs:
1. You receive money from the government
With an RESP, you can contribute up to $50,000 for each child. Furthermore, the Canada
Education Savings Grant will contribute an additional 20% to the account, up to a maximum
of $500 per, which will amount to $7,200 in total. This is one of the significant advantages of
investing in an RESP.
2. The savings are tax-deferred
Another benefit of RESPs is that all the growth in the plan is tax-deferred as long as the
money remains in the plan. In addition to the savings being tax-free, the money earned from
government grants will ensure that your child’s savings grows quickly.
3. The funds can be utilized for a wide variety of educational institutions
RESPs are not only created for students going to university, but they can also be utilized to
help pay for students attending colleges, trade schools, as well as apprenticeship programs.
By investing in an RESP, you can finance a plethora of educational programs.
4. Covers more than just tuition
Another benefit of investing in an RESP is that the money can be used for a plethora of
reasons. However, they must be directly related to your children’s education. Once your child
has enrolled for either a full or part-time post-secondary education, they will need to show
proof of enrolment. The funds can be withdrawn using educational assistance payments
(EAPs). The money can be used to pay for tuition, housing, books, transportation etc.
5. RESPs are taxed to your children’s tax bracket
The income for RESP withdrawals will be added to your child’s tax returns and not yours.
However, since post-secondary students do not earn a great deal, the taxable amount will be
not there or minimal. This is by far the best benefit of an RESP.
6. If your children wish to not pursue post-secondary education, your savings will be safe
An important reason why a few people do not invest in an RESP is that they are unsure if
their child will get to utilize the funds. Don’t worry, one of the benefits of RESPs is that any
money saved will not go to waste. An RESP can stay open for up to 36 years. In the event
your child chooses to not pursue post-secondary education, they can transfer up to $50,000 to
your Registered Retirement Savings Plan (RRSP). However, the RESP needs to be active for
at least 10 years and it must have sufficient contribution room. If your child receives a
disability tax credit, you can switch the savings to an RDSP for them.
7. Any person can set up an RESP
It need not necessarily be the parents that set up your children’s RESP. It can be your
grandparents, aunts and uncles to set up and contribute to an RESP. It is much wiser to invest
in an RESP than in the stock market.
It has been proven that investors with more sound financial knowledge can help you get the
best out of an RESP. At Rupinder Rai, you can rest assured; that we would offer RESP
advice that would suit your overall financial plan. To schedule an appointment or for more
details, please do not hesitate to get in touch.