RESP – Invest in Your Child’s Future

Investment Market

Anthony TalaricoTHUNDER BAY – Business – A registered education savings plan (RESP) allows a parent or guardian to contribute to a plan for a child, to use while attending a post secondary institution.  Contributions to these plans are not tax deductible, and withdrawals of the contributions are not taxable.  However, income earned on the funds is tax-deferred until withdrawn for the post secondary education of the child.

The income from the RESP is taxed when the funds are withdrawn for the child’s education and is taxable to the child at that time.  The benefit however is that the child, who would be in post secondary school, will typically be subject to a lower tax rate than the contributor.  This may result in the child paying little or no tax on the amounts withdrawn, as the child may only have a part-time job and will have their tuition credits. 

Who is eligible for RESP funding?

Almost all full time post secondary education in Canada is eligible for funding from an RESP.  Educational institutions outside of Canada that have post secondary level courses can also qualify as long as the child is enrolled in a course that lasts for more than a semester.  Part time students are also eligible as long as the courses they are taking add up to atleast 3 hours a week or 12 hours per month spent on the course.

Which type of plan is right for your child?

There are three types of RESP savings plans: individual, family and group plans.

Individual plans are setup for one person and does not have to be someone who is in your immediate family.

Family plans are setup for a related child, whom must be under the age of 21 years old to qualify. 

The Benefits to Contributing to an RESP

Regardless of what your family net income is, the Canadian Education Savings Grant (CESG) will provide your plan with 20 cents on every dollar on the first $500 contributed to each child’s RESP each year.  You may however be eligible for more if your income falls into a certain criteria. Also, depending on the amount contributed, CESG will pay up to $2500 into each child’s plan each year. 

An additional amount called the Canada Learning Bond (CLB) is available for families whose incomes are in.  The lifetime maximum CLB is $2,000 depending on the amount of contributions made into their RESP.

There is no annual contribution limit, except for the $50,000 lifetime contribution limit.  This allows for multiple contribution possibilities depending on the client’s preferences, available funds and cash flow. 

The Bottom Line

RESPs are a great savings vehicles for those parents who want to put money away for their children’s education.  The earlier you can take advantage of the plans and options that are given to us through a RESP, the faster you can have your children’s education paid for.  Should you have any other questions about RESPs, do not hesitate to contact me by email or phone.

Anthony M.Talarico

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