Everything You Need To Know About RESP

 

A Registered Education Savings Plan (RESP) is a tax-sheltered investment vehicle designed to help families save for a child's post-secondary education. The government of Canada provides various incentives to encourage families to invest in RESPs, including the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB).

The Benefits of an RESP

One of the main benefits of an RESP is the government incentives that are available to families who invest in them. The CESG, for example, provides a grant of 20% on the first $2,500 of annual contributions, to a maximum of $500 per year. The CLB, on the other hand, is a grant of up to $2,000 for low-income families to help them start saving for their child's education.

Another benefit of an RESP is that the money invested grows tax-free until it is withdrawn to pay for a child's education. This means that families can accumulate more savings over time compared to other investment options that are subject to taxes on investment gains.

Eligibility for an RESP

To open an RESP in Calgary, you must have a valid Social Insurance Number (SIN) for the child who will be the beneficiary of the plan. The child must also be a resident of Canada and under the age of 21. There is no income limit to be eligible to open an RESP, and multiple RESPs can be opened for the same child.

Types of RESPs

There are two types of RESPs: individual and family. An individual plan is set up for one child, while a family plan can be set up for multiple children, such as siblings. With a family plan, all children are considered beneficiaries, and the money can be used to pay for the education of any of the children named in the plan.

Another type of RESP is called a group plan, which is offered by financial institutions and educational institutions. With a group plan, the beneficiaries are determined by the plan sponsor, and contributions are pooled with other investors.

Withdrawals from an RESP

When a child is ready to start post-secondary education, the money in the RESP can be withdrawn to pay for tuition, books, and other education-related expenses. These withdrawals are called Education AssistancePayments (EAPs).

EAPs are subject to income tax, but since the money in the RESP has grown tax-free, the beneficiary will likely be in a lower tax bracket while they are in school and will owe less tax on the withdrawals. Any unused funds in the RESP can be transferred to another sibling or rolled over into an RRSP for the parent or primary caregiver.

Conclusion

An RESP is a great way for families to save for a child's post-secondary education. With government incentives, tax-free growth and various options for withdrawals, it's an attractive option for many parents. If you're considering saving for your child's education, be sure to explore the different types of RESPs available and the incentives that can be used to maximize your savings.