Although proper education is of critical importance for your child to develop a successful career, it can also be financially inaccessible to most. With costs of admission and tuition fees on the constant rise, you are sure to have your hands full by the time your child becomes of age to start their college or university education.
In addition to this, there are plenty of other expenses too that you have to keep in mind; such as textbooks, residence, transportation, etc.. After all, just the admission fees and tuition are not going to get your child through college.
Hence, it would not be a bad idea to put a savings program in place to prepare you for all the expenses once your child does attend higher education programs. A Registered Education Savings Plan or RESP may just be the best way for you to plan for the bright future of your child.
Parents usually have 17-18 years between the birth of their child and the beginning of their college education. This gives parents an ample amount of time to generate and save as much money as possible to fund the higher education of their children.
One of the most popular ways for parents to save for their childrens’ education is through opening an RESP for them as early as possible.
Important Aspects to Consider Before Investing in an RESP
There are numerous institutions and companies in Canada who provide parents with RESPs for their children. This means that you have plenty of options to choose from. At the same time, the Government of Canada makes a contribution towards these savings, which accounts for 20 percent of your entire contribution tax free. This is the government’s way to shaping a bright future for the upcoming generations of the country. However, it is crucial that you learn as much as possible about this savings plan so that you can choose the best option for your kid.
The internet may be a great place to get started on your research for the best options before you put an action plan in place. You can also obtain first-hand knowledge from experts by speaking to consultants and leading institutions across the country. There are, however, a few important things that you must consider while opting for a RESP.
- There is no limit to how much can be contributed annually.
- There is, however, a limitation to the total amount that can be accumulated in a lifetime, which stands at $50,000.
- RESPs are eligible for savings incentives like the Canada Education Savings Grant (CESG). They can be worth up to $7,200, according to reviews on Knowledge First Financial.
- The government contributes 20 percent of the total plan.
- Families with substantially low income may receive more than 20 percent from the government.
- Family members and relatives can contribute towards an RESP in the form of gifts and presents only after the child has qualified for a part-time or full-time course.
- RESP contributions are not eligible for tax deductions.
- RESPs reach maturity in the 26th year, but can be used before that as well. This gives your child more time to qualify for any higher education program.
- In case you do not use the funds of this savings plan for the education of your child, you can transfer it towards your retirement program. In this case, the amount contributed by the government will be withdrawn. You will also have to pay taxes on any interests and other returns the plan has generated in the meantime.
- In an event where the funds are not used for higher education of your child, some certain rules and regulations are applicable for the closing of the account.
- RESPs are not recommendable for families with unstable financial conditions due to a number of fees and taxes associated with pre-maturity withdrawals.
- At the time of withdrawal, any money that the funds (after deducting the 20 percent contribution of the government) can generate in way of interests or other such methods is taxable. If the child withdraws the money for his/her education, they are charged the tax rates for students. If the parents withdraw the funds for other purposes, they have to pay increased tax rates.
There are several other important aspects that you may want to consider before opting for an RESP for a bright future for your child. Although, opening an RESP is one of the most popular options. Make sure to consider all the available options and make an informed choice based on your research.
Disclaimer: This content does not necessarily represent the views of IWB.