As a parent, planning for your child’s education is essential, and one of the best ways to do so is by investing in a Registered Education Savings Plan (RESP). An RESP is a tax-deferred savings account that helps parents save for their child’s post-secondary education. In this article, we’ll cover everything you need to know about RESP.

What is an RESP?

A Registered Education Savings Plan (RESP) is a savings account that helps parents save for their child’s post-secondary education. The account is registered with the Canada Revenue Agency (CRA) and allows parents to invest in a variety of investments like mutual funds, exchange-traded funds (ETFs), stocks, and bonds.

How does it work?

When you open an RESP, you name your child as the beneficiary, and you contribute money into the account. The money you contribute to the account grows tax-free until it is withdrawn for educational purposes. The government of Canada offers grants like the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) to encourage parents to save for their child’s education.

The CESG is a grant that matches 20% of the contributions made to an RESP up to a maximum of $500 per year. The CLB is a grant of up to $2,000 per child that is available for families who meet certain income requirements.

When your child is ready to attend post-secondary education, they can withdraw the money in the RESP to pay for tuition, books, and other eligible educational expenses. The money is taxed at the student’s tax rate, which is usually lower than the parents’ tax rate.

Types of RESP

There are two types of RESPs: family plans and individual plans. A family plan can have multiple beneficiaries, usually siblings, and allows for flexibility in case one of the children decides not to attend post-secondary education. An individual plan only has one beneficiary and is more suitable for families with only one child.

Contributions

The lifetime contribution limit for an RESP is $50,000 per child. However, there is no annual contribution limit. You can contribute as much or as little as you want each year, up to the lifetime contribution limit.

Taxation

When the money is withdrawn from the RESP, it is taxed in the student’s name, usually at a lower tax rate than the parents’ tax rate. If the student does not attend post-secondary education, the grant money must be returned to the government, and the earnings will be taxed at the parents’ tax rate.

Conclusion

Investing in an RESP is an excellent way to save for your child’s post-secondary education. Not only does it allow you to save money tax-free, but it also offers government grants that can help grow your savings. With the information in this article, you have everything you need to know about RESP and can make an informed decision about saving for your child’s education.