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Curious all about RESPs? We’ve got some answers!
As a parent, it’s important to prepare for when your child transitions to college in Canada. Apart from being an emotional process, higher education can also be an expensive endeavour. On average, Canadian parents could spend up to CA$6,400 per year just on tuition to finance the undergraduate learning of their child.
Student loans could leave your child in debt once they graduate from college. Fortunately, a student loan is not your only option to finance your child’s dreams. There’s also a Registered Education Savings Plan (RESP) to consider. When contemplating student loans vs RESPs, it’s important to know what an RESP is exactly, and the benefits it provides you and your future graduate.
What Is an RESP?
If you want your child to attend the best college or university without having to worry over finances, opening up an RESP helps. It allows parents to simply save money for their child’s post-secondary education on a monthly basis. Your contributions can go towards funding tuition, allowances, transportation, and everything else your child needs in their years of post-secondary education. On top of being a savings plan, an RESP can also provide you with the following advantages:
It leads to greater financial flexibility
You may already be struggling with utility bills, taxes and other necessary expenditures. All of which will affect your plans to save for a quality post-secondary education. You can make big or small contributions and get massive gains in the form of cumulative earnings.
On top of that, you also get a government grant (known as the Canadian Education Savings Grant) of up to CA$500 per year if you contribute a full CA$2,500 annually to your child’s plan. You can max this out within 14.4 years to get the full lifetime value of $7,200. This will make a big difference once your child makes the transition to post-secondary by the age of 18.
It gives tax benefits
Another good reason to open up an RESP is that you can earn from it tax-free when you make contributions and can only be taxed once you withdraw funds from the plan. Additionally, you can still recover any remaining income tax-free if your child finishes college or decides not to pursue a college education.
It allows multiple people to contribute
Parents are not the only ones who are responsible for contributing to a child’s RESP. As a matter of fact, anyone can contribute to an RESP for a single child. You should take note that contributions from different subscribers across multiple plans are combined and capped at CA$50,000 per beneficiary. Nonetheless, having multiple subscribers can lighten the load.
As the cost of living continues to rise and a college or university degree becomes more expensive, learning all about RESPs can make a big difference to your future, and your child’s future. Be financially savvy and make saving simple with an RESP!