What are RESPs, and Reasons to Open an RESP?

What is an RESP?

A Registered Education Savings Plan (RESP) is an education savings plan initiative from the Canadian government that gives individuals the opportunity to save for their children’s post-secondary education. This tax-free savings plan allows you to save money periodically and help your children go after their professional dreams without you having to break the break by paying for high-interest loans. As mentioned above, the investment made in this savings plan is free from taxes, which means there will be no taxes on income on interests, capital gains. The most significant advantage of a Registered Education Savings Plan in Canada is that the government contributes a portion to the education savings plan. Over the life of the RESP, you can get up to $7,200 from the government.

To find out more details on RESP, please do not hesitate to reach out to our team at Canadian LIC today.

Who and all are eligible to open an RESP in Canada?

This savings plan offers a lot of flexibility to the applicants. The plan can be opened by your parents, grandparents, relatives, or even friends. Please note – The beneficiary and the person who opens the account must be a Canadian citizen.

Reasons to open a Registered Education Savings Plan (RESP)

• Grants from the government: With the Canada Education Savings Grant (CESG), the government contributes to your RESP annually. Even families with a low-income background can qualify for this plan. You can contribute a maximum of up to $50,000 for a child’s RESP.
• The savings grow tax-free: You will not be required to pay tax on the earnings received from the plan as long as they stay in the RESP. This ensures your savings grow faster.
• Several investment options: RESPs allow you to choose various investment options like stocks, bonds, GICs, mutual funds etc., to suit your specific investment needs and timeframe. Contact the team at Canadian LIC to find out about the different investment options.
• Friends can contribute to the plan as well: Any person can set up an RESP for your children, including your friends and relatives as well. The RESP of your child can grow significantly with contributions from friends too. You can encourage your family and friends to offer monetary gifts to your child’s RESP on special occasions.
• The savings plan can stay open till age thirty-six years: If your child decides not to pursue their post-secondary education after high school, they can still use the savings in the RESP to go back to school when they want too as the RESP can be open for thirty-six years. There are no restrictions on the beneficiaries on wanting to pursue their education.
• EAPs are taxable only to the student: When your children enroll for post-secondary education, they are eligible for certain payments called Education Assistance Payments (EAPs) from their RESP. They are made up of government grant money and investment earnings in the RESP. Your children will be the ones paying taxes on the earnings and not you. Since students earn significantly less income, they would not end paying a lot of money on taxes.

Give Canadian LIC in Brampton a call today at 416 543 9000 to open an RESP in Canada or schedule an appointment with our team.