Do you want your children or the children of loved ones to obtain a post-secondary education? Why not start investing in a Registered Education Savings Plan (RESP)? Your money will grow on a tax-free basis, and you will receive grants from the provincial and federal governments.
Open an RESP now and deposit the amount of your choice on a monthly or yearly basis. The money invested will generate interest and your savings will grow tax free. You won’t receive a tax deduction, as with a Registered Retirement Savings Plan, but grants will be allocated to the RESP.
A boost from governments
With the Canada Education Savings Grant, you’ll receive an amount equivalent to 20% of your contributions, to a maximum of $500 a year. The Quebec Education Savings Incentive will increase your investment by 10%, to a maximum of $250 a year. Families with modest incomes may also receive the Canada Learning Bond grant.
In total, you can invest $50,000 in an RESP and receive up to $10,800 in grants over its lifetime. This money will go a long way to support a young person with a bright future!
Individual, family or group plan
When opening an RESP, you have the choice between an individual plan or a family plan. The first provides financial support for only one child, and the subscriber can be a relative or a family friend. The second has several beneficiaries, but they must be siblings, and the person contributing to it must be related to them (parents or grandparents).
If the child for whom you establish an individual RESP decides not to pursue post-secondary education, you may decide to encourage another motivated student the beneficiary is related by blood or adoption to the subscriber. However, certain conditions may apply. If you opt for the family format, the money can be used by the other beneficiary or beneficiaries.
You should be aware that there is no urgency to reallocate the funds to another young person wanting to obtain a post-secondary education if the beneficiaries decide to stop their studies after graduating from high school or even earlier. An RESP can remain open until the end of the 35th year following its opening. Young RESP beneficiaries can take a break from school or even an extended trip.
And if you close the RESP, you’ll receive the money you invested and even the accrued interest, subject to certain conditions. The grants must be returned to the governments, however.
As for the sum of your contributions, you will have the choice of leaving it to your descendants or investing it as you see fit. And you won’t have to pay tax on the amount.
Withdrawals
If the RESP beneficiary wants to “change the world” and embarks on a post-secondary education to do so, he or she will begin receiving educational assistance payments (EAPs), which include grants and investment income. The net contributions can then be remitted to you, without tax impact. You can also let the capital grow tax-free for the duration of the student’s education and recover the amounts when the account is closed.
Students can use the money for tuition fees, books or even rent if they have to move away from home to continue their post-secondary educational journey. EAPs are taxable in the hands of the beneficiaries; but if their income is limited, they will pay very little tax.
To receive EAPs, all students have to do is prove enrolment in an eligible post-secondary program. There’s no need for you to keep copies of bills or carry out complicated management of tuition fees. The RESP promoter will also have you fill out a withdrawal form.
Have you decided to open an RESP to help your children or the children of loved ones develop their full potential?
If so, visit our Client Portal and use our simulation tool to get an idea of how your investment will grow. And just imagine yourself at the graduation ceremony!
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