Saving for your child’s education can seem daunting, especially when considering rising tuition costs. However, the Canadian government offers a great tool to help parents save efficiently: the Registered Education Savings Plan (RESP). This article explains everything you need to know to start saving today.
What is an RESP?
An RESP is a savings account designed specifically to save for a child’s post-secondary education. The significant benefit of an RESP is its tax-advantaged growth and access to government grants, notably the Canada Education Savings Grant (CESG).
How Does an RESP Work?
When you open an RESP, you can contribute up to a lifetime limit of $50,000 per child. Contributions grow tax-free within the account. Additionally, the government matches 20% of your annual contributions through the CESG, up to $500 annually (or $1,000 if you have unused grant room from previous years), with a lifetime limit of $7,200 per child.
Québec Education Savings Incentive (QESI)
For residents of Québec, there is an additional incentive known as the Québec Education Savings Incentive (QESI). The Québec government contributes 10% of your RESP contributions, up to $250 annually per child. Low- to middle-income families may also receive an additional amount, increasing the total provincial assistance available.
Types of RESPs
There are three primary types of RESPs:
- Individual RESP: One beneficiary, doesn’t need to be related to the contributor.
- Family RESP: Multiple beneficiaries, must be related by blood or adoption.
- Group RESP: Pooled investment with other contributors, generally has stricter rules and fees.
Most families opt for individual or family RESPs due to their flexibility.
Benefits of Using an RESP
- Tax-Free Growth: Contributions grow without taxes until withdrawn.
- Government Grants: Take advantage of CESG, Canada Learning Bond (for lower-income families), and provincial incentives like QESI.
- Flexible Use: Funds can be used for tuition, textbooks, living expenses, and more.
What Happens If Your Child Doesn’t Attend Post-Secondary Education?
If your child doesn’t pursue post-secondary education, you have several options:
- Transfer the RESP funds to another child’s RESP.
- Withdraw contributions tax-free (grants must be returned).
- Transfer to your RRSP if conditions are met.
How to Start an RESP
Opening an RESP is straightforward. Most banks, credit unions, financial planners, and investment companies offer RESP accounts. You will need your child’s Social Insurance Number (SIN) to register.
Conclusion
An RESP is one of the best financial tools for preparing for your child’s future education expenses. The earlier you start, the more time your investment has to grow tax-free, maximizing your savings.
