By iA Private Wealth, August 15, 2022
How an RESP works
An RESP is tax-sheltered account that offers a government grant up to a certain amount each year, boosting parents’ savings for their children’s education. There are two types of RESP accounts: individual and family. Almost anyone in Canada can open an individual RESP account for a student (beneficiary) residing in Canada, while opening a family RESP is limited to the child’s (or children’s) parents or grandparents. There are some differences between these two account types – notably regarding certain beneficiary stipulations – but the nuts and bolts are the same.
A key objective is to contribute regularly to an RESP and take advantage of government grants. The earlier you start the plan, the more your money can benefit from compound tax-sheltered growth, which may create a significant pool of funds when the child is ready to pursue a post-secondary education. While earlier is better, even a late opening of an RESP can make a difference to your child’s ability to afford the cost of higher learning.
Take advantage of government grants
The lifetime RESP contribution limit is $50,000 per beneficiary. Although you could contribute $50,000 in one lump sum, it may be advantageous to make smaller regular contributions. Why? Until the beneficiary turns 17, the federal government will match RESP contributions up to 20% annually through the Canada Education Savings Grant (CESG) program, to a maximum of $500 per year.
What happens to an unused RESP?
An RESP may remain open for up to 36 years, and it’s flexible regarding what programs qualify (i.e., the child can attend post-secondary school full time or part time, and the focus can be on academics or trades). If the original beneficiary does not pursue post-secondary education, you may change the beneficiary in an individual RESP or add another beneficiary to a family RESP.
Overall, an RESP is a practical and tax-effective means of helping cover the ever-increasing costs associated with post-secondary education. An Investment Advisor can work with you to:
We can provide support for all major aspects of your wealth management plan, including RESPs, so please contact us today.This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.