The Gift of Education through RESPs
A new Ipsos-Reid survey indicates that while 97% of parents surveyed want their children to further their education, only 49% of them actually have a Registered Education Plan in place. While it may not cover a child’s entire College or University stint, if set up at an early age, it can take off much of the education funding pressure.
In Canada, we are very fortunate to have the Registered Education Savings Plan (RESP) program. It is one of the few programs that allows assets to accumulate without some form of taxation on a regular basis. The beauty of the RESP is that it in effect allows the benefactor (subscriber) to select when the taxable event will occur on the earnings, at the same time allowing him to choose when he will extract the original capital and all possibly without any tax consequences. An RESP is a special kind of trust that does not need a lot of legal documents to create, or additional tax returns to file each year. It is simple to maintain.
No one can deny the need for higher education, even more so now than in the past. We all know that the cost of attending College or University has been growing at a much higher rate than the general rate of inflation.
Key Benefits of an RESP:
- The Canada Education Savings Grant (CESG) gives 20% on the first $2,500 of contributions annually ($7,200 lifetime maximum) for a child under age 18, with the possibility of catch-up grants.
- Some children qualify for the Canada Learning Bond of $500, with an additional $100/year to age 15 (this is based on family income).
- There are many investment choices, including mutual funds, GIC’s, high interest accounts.
- Family plans allow more flexibility on payout (keeping in line with lifetime maximums).
- Grant and growth are taxed in the beneficiary’s hand when the money is withdrawn, usually at a point when their income is low so no tax is incurred.
Helping a child fulfill their dream of higher education is a wonderful gift and quite easy to do. If you would like more information on this program for a child, grandchild, godchild, etc… Please feel free to give us a call.