If you’ve recently welcomed a new addition, or have young children in the house, you may have already started to think about their future education.
The cost of post-secondary education can be significant, depending on the career your child wants to pursue, and minimizing the need to take out student loans can give them a great head-start as an adult.
Given the rising costs of higher education, starting to plan and save for your child’s educational future as soon as possible just makes sense.
Here are the major benefits of an RESP, and why you should consider investing in one.
Taking Advantage of RESPs
An RESP is a registered savings account that allows deposits to grow tax-free until the beneficiary of the plan makes a withdrawal.
A significant advantage of these accounts is the partial contribution matching by the Canadian government.
There are also additional grants available for families meeting certain income criteria, and extra grants provided by provincial governments in some provinces.
The main goal of a registered education savings plan is to help you save for your child’s college or university education.
With undergraduate programs in Canada currently costing almost $7,500 annually, and being expected to increase, starting to save early is crucial.
RESPs Go Beyond Tuition Fees
One significant advantage of a registered education savings plan is their flexibility; they can be used for various education-related expenses.
Once your child enrolls in either full or part-time post-secondary education, they must provide proof of enrollment to access their RESP through educational assistance payments (EAPs).
Initially, full-time students can withdraw up to $8,000 from their RESP until they complete 13 weeks of their course.
After this initial withdrawal, there are no set dollar limits, only limits based on “reasonableness.”
The RESP funds can be used for tuition, books, housing, transportation, or any reasonable educational expenses.
What if Your Child Decides Not to Pursue Post-secondary Education?
Many parents decide to start RESPs when their children are first born, or in their early years, even though their children may not pursue a post-secondary education.
Fortunately, the funds are not lost if your child opts not to attend a qualifying program after high school. You have several options:
- Keep the funds in the RESP, in case your child decides to attend school in the future. RESPs in Canada are open for up to 35 years.
- Change the beneficiary. For instance, if your first-born child was the designated beneficiary, but decides against post-secondary education, you can transfer the funds to another child. Ensure your RESP provider permits this.
- Transfer the RESP income to another registered savings plan, like a Registered Retirement Savings Plan. You can transfer up to $50,000 between accounts. Certain conditions apply, including the RESP being open for at least ten years, the beneficiary being at least 21 years old, and having sufficient contribution room in your RRSP.
- Close your RESP entirely. This helps you keep your contributions tax-free. However, all grants will need to be repaid to the government. You can still take out earned income, but there may be some tax consequences in certain conditions.
RESPs are a great resource for parents, grandparents, friends, and family to aid a child’s educational goals.
If you’re considering starting an RESP for your child, consider talking with a professional financial advisor to help you decide on the best plan for your situation.
But, remember, the best way to make the most of your child’s RESP is to start early, and contribute regularly.
With your help, your child will be able to get the education they need to achieve their dreams.