If you have children, the chances are that you have suffered through more than a few sleepless nights wondering how you will support them through their post-secondary education. If this is you, you are not alone, especially as the cost of a college or university tuition continues to rise at such a rapid rate.
Fortunately, in Canada we have the Registered Education Savings Plan to help you plan for your child’s education.
A Registered Education savings Plan, or RESP, is a long-term investment account that allows you to help invest and grow your investment with the taxes deferred until the funds are withdrawn to pay for the intended education expenses. RESP’s can be used to pay for costs for a variety of post-secondary institutions such as universities, colleges, trade schools, and apprenticeship programs for expenses like tuition, books, tools, transportation, and rent. There’s even more flexibility when it comes to using the original money contributed. Those contributions can be withdrawn tax-free and can be used for just about any expense – vehicle, insurance, laptop, clothing, etc.
Parents can open an RESP for their child, or children, and in some cases an adult can even open an RESP for themselves.
There are three basic RESP accounts that can be opened by an adult:
- For your own child or children
- For someone else’s child
- For yourself
Within those three options, there are different types of account you can open.
- Family plan (if you have more than one child)
- If you have more than one child, a family plan allows you to name more than one child to receive the savings when it is time to pay for their education costs. The children must be a blood relative under the Income Tax Act of Canada or are legally adopted. There are other rare situations where you can open a family plan such as for grandchildren, but we won’t cover these here.
- Individual (non-family) plan
- This is the type pf RESP you would open if you only have one child you are saving for or if you are looking to open an RESP for yourself.
One of the great benefits of opening an RESP is that after the account is opened, you can apply for the Canada Education Savings Grant, or CESG. The CESG is a government program that provides an incentive for parents to invest in their children’s long-term education by paying a grant into the RESP account for each child. The amount of the grant is 20% of the contribution you deposit to a maximum of $500 per year per child or $7,200 per child over the lifetime of the RESP. The grant is a great way to increase the amount you save for your child’s post-secondary education making the RESP a fantastic investment solution. There are some important conditions to the CESG – you can only apply for the grant up to the year your child turns 17, and you need to deposit a minimum of $100 yourself into the RESP account in at least four of the years before the end of the year your child turns fifteen. Also, if your child decides not to pursue a post-secondary education, the grant funds are required to be paid back to the federal government.
In addition to the Canada Education Savings Grant, you may also be eligible to apply for the Canada Learning Bond (CLB). Like the CESG, the CLB pays an amount, up to $500 into your RESP the first year, and $100 for each subsequent year up to the age of 15, to a maximum of $2,000. Unlike the CESG, there are some other specific eligibility requirements. Your child must be eligible to receive the Canada Child Benefit and as the program is primarily aimed at lower income households, there is an income eligibility requirement to qualify for the Canada Learning Bond.
In British Columbia the B.C. Government will contribute $1,200 to eligible children through the B.C. Training and Education Savings Grant (BCTESG). Children may apply for the grant between their 6th birthday and the day before they turn 9. The parent or guardian plus the child must be residents of British Columbia at the time of application and have a valid Social Insurance Number. The BCTESG requires no matching or additional contributions, so parents and families who can’t afford to put aside savings at this time can still start an RESP. Even the smallest investment can grow over time and make it that much easier to pursue education after high school.
Another great feature of an RESP is that there is $50,000 lifetime contribution limit for each beneficiary. While that may be a real benefit to some, especially if you are considering a very specialized (and expensive) post-secondary journey, there are some important tax implications when you do eventually withdraw that require careful planning and the advice of your trusted financial professional.
Since becoming available in 2004, the RESP has been part of a comprehensive financial plan for Canadians from coast to coast. It is an effective, tax deferred investment strategy to help plan for your child’s education and as the early depositors to RESP’s are now finding, has been a wise decision that is providing financial certainty to ensure their kids can benefit from higher learning without added financial stress to the family.
At Sea Glass Wealth we are experts in all aspects and requirements of the RESP. We can guide you along every step on the road to your child’s post-secondary education with the understanding and advice you need to ensure this important part of their lives are realized.
If you want to learn more about how an Registered Education Savings Plan can work for you or your family we would love to meet with you, and maybe even help you get a better night’s sleep.
We are looking forward to the opportunity to meet you! For more information, please feel free to reach out.
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