Nine Reasons to Open an RESP

RESP SAVINGS

 

Are you interested in opening an RESP for your child? A registered education savings plan (RESP) is a tax-deferred way to save money to cover your child’s education costs. The RESP can be used when they apply to college and it takes the stress off parents.

Here are seven reasons why you should open an RESP for your child.

1. The Government Will Contribute to the RESP

A good reason to start an RESP is that its free money. The Canadian government, through the Canada Education Savings Grant (CESG), will contribute to the RESP for every year that it’s open.

For those with lower incomes, they may qualify for bonds that can be added to their accounts. Additionally, some provinces (Alberta, Quebec, Saskatchewan), have grants that you can apply for. These are all ways to help incur the cost of your child’s education.

2. RESPs are Tax-Free

With an RESP, you’re not taxed on the investment earnings. This can help you save money in a faster amount of time. As long as you don’t touch the money in the RESP, it’s not taxed.

3. You Can Pay Your Kid to Study

When your child is ready to attend college, the payments they take out are educational assistance payments (EAPs). Your child will pay tax on the money they use but it’s a low amount because they likely won’t have income while in school.

5. The Cost of Education is Increasing

Post-secondary education costs are rising. And, having a plan can help your family pay for your child’s tuition so you can cover their expenses.

For their post-secondary expenses, students who live at home might spend $9,300 on their education. Students that live away from home will pay closer to $20,000. Hence, they might need a budget to help manage expenses.

6. Student debt will increase

Having an RESP will take the stress out of paying for university or college. Based on the Canadian Federation of Students, students that take out Canada student loans will owe about $28-29,000.

The average student will owe:

  • $9,000 in the first year
  • $14,000 in the second year
  • $19,000 in the third year
  • $23,000 in the fourth year
  • $29,000 in the fifth year

7. You Will Have Several Investment Options

The RESP account will give you access to several different investment options. This is similar to an RRSP or TFSA account. You can custom design your investments based on your particular needs.

Investment options include:

  • Stocks and bonds.
  • Guaranteed investment certificates (GICs).
  • Mutual funds.

8. You Can Make Different Types of Contributions

If your family or friends want to contribute to your child’s RESP, they can. A good way to increase the amount in the RESP is to let family and friends know they can  make monetary gifts into the child’s account. You can encourage contributions on birthdays, at graduation and around holidays.

8. Your Child will Have Time to Use Their RESP

Let’s face it, some kids don’t know what they want to study. And, if your child decides to defer their education, that’s okay. The RESP is good for up to thirty-five years and under specific plan rules, the account can stay open for up to forty years.

9. Your Money is Still Available if a Child Postpones Their Post-Secondary Education

If your child wants to hold off on school, the RESP money is still available.

If your child postpones their post-secondary education:

  • You can withdraw all the original money that you added to the account. This includes all contributions you made and any that family or friends made.
  • The account is good for thirty-five years in the event your child changes their mind and wants to attend college or university. For example, if they are age five when you opened the account, they will have until age forty (thirty-five years) to apply to school and use their RESP.
  • You can transfer RESP money from one family member (beneficiary) to another with family RESP accounts.
  • All investment income that’s in the RESP totaling up to $50,000 can be rolled into an RRSP account. This is in the event the student doesn’t use the money for school and the RESP is closed.

If you do decide to roll your RESP into an RRSP, remember that all government-matched money that the government contributed will go away if the account is closed and not used for education.

Opening an RESP for your child is a good investment. They’ll have money for their post-secondary education and you can make contributions. If your child postpones their education, you can access your original contributions. And, any investment income can be rolled into an RRSP account.

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Saving for Education

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