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Saving For School: Everything You Need To Know About RESPs

Saving For School: Everything You Need To Know About RESPs

Hand putting coin into a pink piggy bank saving for RESP

As tuition prices climb and the need for a post-secondary education becomes more and more of a requirement in the job market, it is no wonder that parents across Canada are starting to sweat about the cost of sending their child to college or university. However, with the help of an RESP you can alleviate some stress and slowly stash some cash, without draining yourself dry in the meantime. Let’s take a look at why starting an RESP could be the right move to help plan for your child’s future.

What Is An RESP?

The acronym RESP actually stands for a Registered Education Savings Plan, which is an investment account used by parents to help save for their children’s post-secondary education in Canada. Essentially an RESP can be opened at any time and any contributions made to the account will not be taxed until the money is withdrawn.

How Is An RESP Taxed?

While the account is open and savings are being accumulated, the contributions will not be taxed. However, there is a bit of a catch. Contributions are not deducted from a parent’s income. While the money is not taxed until it is withdrawn, it will be taxed to the student once the account shows withdrawal activity. However, the plus side is that by taxing the student and not the parent, it will be taxed within a lower income tax bracket, as the student will likely have a lower income than the adult who opened the account for them.

Does The Government Help Fund An RESP?

Along with any contributions made by parents, grandparents, etc. the Canadian government also assists in adding to the savings account. In many circumstances, grants are given in the form of contribution to an RESP. For example, families with an annual income of less than $42,000 can be granted up to $2,000 per child in an RESP. Additionally, some major cities offer incentives as well. The city of Ottawa for example, grants up to $500 per child for starting an RESP savings account. These are known as Canada Learning Bonds, and a large portion of potential students are eligible for them.

Additionally, in many cases the Canadian government offers a match of up to 20% of annual contributions, with a maximum of $7,200 per child per lifetime.

When Can I Open An RESP?

The great thing about opening an RESP is that you can start one at any time. Whether you child is 5 days old or 5 years old, you can open a savings account for their future. And if you happen to be late to the savings game, that’s not a problem. You can open an RESP and qualify for government savings grants until age 36.

What If My Child Doesn’t Go To School?

If the time comes and your child decides not to peruse a further education at a post-secondary institution your savings are not lost. All money you have contributed will be returned, although it will be taxed. You will also be penalized an additional 20% on any earnings such as interest or dividends on the account.

Is There A Minimum or Maximum Contribution?

An RESP does have some guidelines as far as minimums and maximums, although they are quite lenient. In order to qualify for a low income grant on your RESP, you must deposit a minimum of $100. As for a maximum, an RESP holds a max contribution of $50,000 per child, per lifetime. However, in a broader picture, that allows for a family of 3 children to potentially stash away $150,000 collectively for their children’s educations.

Saving for your children’s futures doesn’t have to be an added stress in your life. With the help of an RESP you can save towards their education at an easy, paced rate. If you have any questions about opening an RESP for your children, don’t hesitate to give me a call at 705-315-0516. I am always happy to help you better understand your investing options whether for future education or in a mortgage renewal to consolidate your debt.



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