Registered Education Saving Plan
“A Registered Education Savings Plan (RESP) is one of the best investments you can make”, says Educators Financial Group Certified Financial Planner Jim Wanamaker.
So why is Jim such a big fan of RESPs?
“Well, whether you have children, or are a simply a proud aunt, uncle or grandparent – there are many reasons for taking advantage of an RESP.”
RESP advantages
20% savings grant
You’ll receive a Canada Education Savings Grant (CESG) equal to 20% ($500 maximum) of your investment for a contribution of $2,500 per calendar year with a lifetime maximum of $7,200.
Click here to learn more about the CESG
Earn additional return
If you put the contribution and grant proceeds into a conservative investment with the potential to generate another 2-5%, that can translate into a sizable 22-25% return on your investment.
RESP top tip: The earlier the better
A child is only eligible for the Canadian Education Savings Grant up to the age of 17 – so start the RESP from birth in order to maximize the full benefits of the free grant, plus tax sheltered growth. Put the power of compounding growth over time on your side—it will lead to a substantial nest egg to pay for your child’s or grandchild’s education.
Investment is tax sheltered
Contribute up to $50,000 per child over the life of the plan. The investment will then grow, sheltered from tax. When the money is withdrawn, only the earned investment income is taxed in the hands of the child, at the child’s tax rate, possibly zero in some cases.
No risk
If your child decides not to pursue post-secondary education, no worries. You need not close the RESP until the 36th year of the plan. This gives your child plenty of time to pursue higher education. If not, you simply close the RESP and return the CESG portion to the government. The contributions are returned to you tax-free, and the income earned can be rolled into your (or your spouse’s) RRSP, provided there is contribution room. (If no RRSP room exists, the earned income is then taxed at your marginal tax rate plus an additional 20%)
A great strategy for grandparents
Regularly contributing to your grandchild’s RESP now will ensure they receive a legacy from you that will last a lifetime. With grandparents taking care of the RESP, it assists the child’s parents to pay down their mortgage or take care of other financial needs. An RESP is a gift that is more valuable than any toy you could ever give your grandchild.
At Educators Financial Group – we’re here to help
Keep in mind that certain rules exist regarding eligibility for a CESG. That’s where our financial specialists can provide you with the information in order to best guide you when it comes to investing for your child’s future.
