An RESP is to education what an RRSP is to retirement: it allows you to build up savings to put toward your child’s post-secondary education. This is the most precious gift you could offer your child: the possibility to pursue the career of their dreams.
Where to start?
Your contributions can help fund the education of your children, as well as that of your grandchildren, your nephews and nieces, or your godchildren, depending on the plan type you choose: individual or family.
When you form good savings habits and contribute to your child’s RESP when they are young, you are giving them access to a larger amount when they start their post-secondary education.
The RESP is for everyone—contribute as little as $25 a month. The amount you invest can vary based on your budget, as long as you stay within the lifetime limit of $50,000 per child.
How can I accumulate more?
Thanks to the Canadian Education Savings Grant (CESG), the federal government supplements RESP contributions, matching up to 20% of your annual contribution (to a maximum of $500 per beneficiary per the year.) Combined with your regular contributions, this generous government assistance deposited in your RESP gives a significant boost to your savings.
Depending on your family income, you could be eligible for an additional grant. All your investments, grants and interest grow tax-free until withdrawal.
When your child starts post-secondary education, you recover the amounts you invested at the pace you choose. You don’t pay any taxes on the amounts returned to you. Your child receives the grants and interest generated on the total balance of the RESP account through Educational Assistance Payment (EAP). Since students generally have a lower tax rate, the tax bill to pay on EAPs is often minimal.
If your child doesn’t pursue a post-secondary education, you can:
Designate another child in the family
Withdraw your original contributions tax-free
Transfer your accumulated investment income to your RRSP under certain conditions
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