What is an RESP?
A Registered Education Savings Plan (RESP), sponsored by the Canadian government, encourages investing in a child’s future postsecondary education. Subscribers to an RESP make contributions that build up tax-free earnings. The government contributes a certain amount to these plans for children under age 18.
Note : Contributors do not receive a tax deduction for investments in an RESP. There are no taxes due until funds are taken out to
pay for a child’s education. At that time, contributions made into the RESP are returned tax-free, although contributors’ earnings
from the plan are taxed. The money the government pays out is taxed to the students. However, since a large number of students
have little to no income, many can withdraw the money tax-free
How does RESP work?
Anyone can contribute, whether it’s mom, dad, neighbor, or a favorite aunt or uncle. The government then matches the money up to a certain percentage and deposits it into the child’s RESP. The extra funds the
government deposits are called the Canadian Education and Savings Grant. The amount provided is graduated, based on family
income.
What are the benefits of contributing to RESP?
Benefits of Contributing to an RESP are as follows:
- Federal government adds to your RESP savings each year through the Canada Education Savings Grant. Lower-income families may also qualify.
- You can choose investments that best suit your investment objectives, risk tolerance, and time horizon. Different providers offer different investment options.
- If your child chooses to defer their education plans after high school, they can still use the RESP money when they are ready to go back to school.
