Whether you just found out you’re expecting, or your child is in his/her teens, it’s never too early/too late to save for their future. With our school system failing on educating our children on finances and money management, it’s part of our responsibility as parents to make sure they’re covered as much as possible. Allowing them to worry about what’s important — their GPAs and furthering their education, and careers.
But where to begin… Some may start by putting a few dollars in a jar; but the best thing for you to do is to start a Registered Education Savings Plan (RESP). An RESP is an investment option available to parents in Canada to save for their children’s post-secondary education . The main advantages of RESPs are the access they provide to the Canada Education Savings Grant (CESG), and as a method for generating tax-deferred income.
Sounds good right? Certainly, but first there are some things you should know:
- There is a wide range of investment options available for RESPs, your options include: stocks, bonds, mutual funds, GICs. Some plans let you decide how to invest your savings. Others invest your money for you.
- Educational Assistance Payments (EAP) is when you withdraw funds from your plan. Following this you will receive a T4 for the amount and will have to declare these earnings on their tax return. There is a $5,000 cap on the withdrawal, but there is no annual contribution limit. The lifetime contribution limit; however, is set to $50,000.
- Your contributions are not tax deductible; but you can withdraw them tax-free from the plan at any time, for any reason. These funds can be withdrawn without penalty or tax so long as one of the listed beneficiaries is in an acceptable post-secondary program, another qualifying education program, or specified education program.
- The amount that can be withdrawn depends whether the student is full-time or part-time. Every withdrawal requires proof of expenses and registration from the post-secondary institution. Your RESP provider will require a letter indicating how much money you would like to withdraw, whom it should be payable to, and where the funds should be sent.
- There are two types of RESPs available: family plans and specified (single) plans. Family plans are the only RESP that allows subscribers to name more than one beneficiary, if you have a family plan you need to make sure you don’t withdraw more than $7,200 per child.
- You RESP can stay open for 36 years if your child decides to not pursue post-secondary education. Any funds remaining will either by returned to the government, or to the individual who opened the plan.
- If your child finishes school early, or doesn’t need all of the money within the RESP, it is recommended that you withdraw the funds regardless, or transfer them to a separate plan.
- There are two types of Registered Education Savings Plan providers:
1. Financial institutions, such as banks, credit unions, etc.
2. Scholarship plan dealers, or companies that only sell RESPs. - You have 60 days to cancel any plan provided by scholarship plan dealers without any penalty. Be sure to read your Plan Summary!!
As always, if you have specific questions pertaining to your childs future or your finances, contact a professional: info@kbh.ca