Wealth

It’s Time To Give RESPs A Little RESP-E-C-T

By Nest Wealth on 05/06/2019Article 4 Minute Read

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An RESP, or a Registered Education Savings Plan, is a tax-sheltered education savings account that’s meant to help parents save for their children’s post-secondary education. You can start an RESP when your child is born, and contribute until 31 years after the account was opened.

As you probably know, post-secondary education is expensive, and it seems like prices keep on climbing. Having an RESP can help cover some of those costs, and when the time comes for your kid(s) to earn those degrees, a well-funded RESP will help lighten your financial load.

While Aretha Franklin most likely wasn’t singing about tax-sheltered education savings accounts, her song lyrics inspired me to give RESPs the resp-e-c-t they deserve. So here are 5 reasons to open an RESP today:

1. You’re Helping Your Child(ren)

As parents, it’s part of our purpose to set our kids up with the skills and things they need to grow in life. Starting an RESP is a great step you can take today to ensure they’re better prepared for the future.

2. Education Is Expensive 

Debt is a huge burden for anyone, especially for a new graduate. An RESP can provide your kid(s) with the cushion they need to get the education they want, and it can also reduce the financial burden you take on as a parent. If you can provide your child(ren) with a well-funded RESP, they may not need to get that part-time job and can instead, focus on their studies. Also, opening an RESP can help your kid graduate with less debt, or maybe even debt free!

3. Free Money! 

The government will give you money if you use an RESP (and the government doesn’t give away much for free!). Depending on what province you live in, there are a couple of grants you could receive, such as:

    • Canada Education Savings Grant (CESG): The federal Government will match 20% of the money contributed to an RESP. The annual limit is $500, and a lifetime limit of $7,200. If your family income is less than $90,563 more money may be available to you.
    • Canada Learning Bond (CLB): The Federal Government will give you $500 for opening an RESP (seriously, just for opening it) if your child was born after December 31, 2003 and your family income in 2015 was less than $44,701. You’ll receive an additionally $100 annually from the Federal Government up to the age of 18 (maximum lifetime limit is $2,000).
    • Canadians from Quebec, Alberta, or Saskatchewan may also be eligible for a provincial grant.

4. RESPs are flexible – If A Child Doesn’t Go To School, You Don’t Lose Money

If your child graduates high school and wants to delay their post-secondary education that’s ok! RESPs can be used to fund a beneficiary’s education for up to 35 years after the account was opened. So if you open one when your child is born, they have 36 years to use it. Should you choose to close an RESP, here’s what happens to the funds:

    • You can withdraw your original contributions tax-free
    • Any money the government contributed will be returned to them
    • Investment income (up to $50,000) made within the RESP can be rolled over into your RRSP (if you have the contribution room) on a tax-deferred basis

5. Money that grows makes a great gift. 

Your child’s RESP will grow quicker with more contributions. Plus, there’s no tax on any investment earnings as long as they stay in the RESP (more growth!). Friends and family can contribute on special occasions, perhaps in place of a birthday present or even as a graduation gift!

Have any questions about RESPs or getting started? Share them with me in the comment section!

 

For more information on RESPs, visit http://www.esdc.gc.ca/en/resp/info.page