If you have a child in your life, now may be the perfect time to invest in an RESP and save for their future. In this blog we’ll share what an RESP is, what benefits can come from it, and other helpful information you need to know!
What is an RESP?
RESP stands for Registered Education Savings Plan. It’s a way for people to save for a child’s education after high school. According to the Government of Canada, this can include trade schools, CEGEPs, colleges, universities, and apprenticeship programs.
Unlike Registered Retirement Savings Plans (RRSPs), the contribution deadline for an RESP is December 31st. RESPs can hold various investments including stocks, bonds, segregated funds and mutual funds.
What are the benefits of investing?
There are a number of benefits to investing in an RESP for your child or grandchild.
There is no yearly contribution limit, only a maximum lifetime contribution of $50,000. However, up until your child turns 17, they are eligible for a Canada Education Savings Grant (CESG), which increases your annual RESP contribution by 20% to a maximum of $500 per calendar year, per child.
The grant can be carried forward into future years, however, the most that can be paid out per year is $1000. This grant can be applied up until the child is 17 years old, to a maximum of $7,200. Learn more about RESPs and applicable grants here.
Your family may also apply for the Canada Learning Bond, which offers up to a maximum of $2,000 for students from low-income families.
Another important thing to note is that RESPs are tax sheltered until withdrawn. Because they would be withdrawn by a student, they would be taxed in the hands of the student, who is typically in a low tax bracket while in school.
You can use this RESP calculator to see the impact long-term for your child depending on their age, education plans, and what resources you have available to invest.
What if your child doesn’t go to school?
Our friends at SunLife answered this important question here, and to summarize – you have options! You could keep the RESP open in case your child changes their mind, or transfer the funds to another child’s RESP. You could also choose to transfer funds from the RESP to a RRSP.
If you have questions about how an RESP may be beneficial for your family, don’t hesitate to contact us!
