The Importance of RESP’s
Parents all over Canada aspire for their children to complete a post-secondary education. However, with tuition costs inflating year after year, affording that dream can seem far-fetched. Luckily, there’s an under-used solution to ease the burden on parents: the RESP. The Registered Education Savings Plan (RESP) is an investment plan designed to save for your child’s education. The best part of the RESP is that the government pays you to use it by contributing to the fund. Your child’s dream of becoming a mad scientist or an astronaut can become a reality if their tuition is paid for.
Get Rewarded for Saving
The Canadian government wants you to use an RESP for saving. To encourage it, they contribute to your child’s RESP as well. The amount they contribute varies based on your income level and how much you contribute each year. They will contribute up to 20 % of your contribution amount. That means the government will add an extra $500 to your RESP if you contribute $2500 in one year. You’re receiving free money to add to your child’s school savings just for using this account. Plus, if you have a low or middle-income household, there are additional benefits you can receive.
Tax-Free Savings
Like TFSAs, Registered Education Savings Plans are tax-free accounts. That means your money in that fund grows over time without being taxed. However, when your child becomes a student and starts receiving RESP payments for school, they will be taxed. Luckily, this isn’t a big problem because students have notoriously low incomes which means their tax bills are also typically low.
“What if My Child Isn’t Ready for School?”
There’s no timeline or deadline for your Registered Education Savings Plan. Whether your child is 18 or 44, it’s there for their education. This is important as many Canadian high school grads are choosing to take some time to work and settle their plans before going off to university. You can keep contributing to the account or let your adult child contribute to their own RESP. Either way, it’ll continue to grow until they’re ready to use it. RESP’s can also be rolled over to other siblings who may choose to go to school.
Know more about the child savings plan in Canada.
Teaching Your Child About Money
Many families use the RESP as a teaching tool for their children. You can reward your child’s good behaviour and completed chores by contributing more to their RESP. Then, by teaching them about the extra contributions from the government, they learn that invested money can turn into more money. Thus, they’ll see the benefits of saving and investing.
You can also use it as a responsibility lesson. When they become teenagers and get part-time jobs, don’t ask them for rent. Make it a rule that they must contribute to their RESP. It goes towards their own future and prepares them for the real world by teaching them about finances. There’s no time like the present to set up an RESP for your child. Contact us for guidance on where and how to set up your Registered Education Savings Plan.