7 RESP tips to help you save for education
1. Contribute $2,500 to an RESP and receive $500 in the Canada Education Savings Grant each year. That’s a 20% return – and just the starting point for the potential your RESP can grow.
+Each child is entitled to an annual amount of $500 in CESG until the end of the year they turn 17, to a lifetime maximum of $7,200. All you and your child need is a Social Insurance Number to open an RESP.
2. Raising a child is expensive and it’s important to save according to what you can afford. The good news is you won’t lose the opportunity to collect CESG – you can carry forward unclaimed grant for future years.
It can take a few years to ‘catch up’ since the maximum CESG payment is $1000 per year. Starting an RESP when your child is young and using ‘extra’ cash such as work bonuses or gift money are good ways to get closer to collecting the full $7,200 CESG.
3. RESP contributions are not required to receive the Canada Learning Bond. A first CLB payment of $500 is available to recipients of the National Child Benefit. Based on your income tax return, an additional $100 each year will be deposited into the RESP until your child turns 15.
Unlike government grants which are earned on contributions you make to an RESP, CLB is truly ‘free money.’
4. RESPs enable you to earn tax-free income. That means you pay no tax on the grant and investment growth, as long as it remains in your RESP. Income earned in your plan does directly to your child’s education assistance payments; on a student’s income, there will be little or no tax to pay.
5. Some investors may choose to contribute the lifetime maximum of $50,000 per child into their RESP. While only $36,000 is required to receive the maximum CESG, you can save up to the $50,000 limit to take full advantage of compound growth and tax-deferred income.
With the costs of education rising to $100,000 for a four-year degree with residence, it makes sense to save as much as possible into an RESP to help with the cost of education.
6. A lesser known feature of an RESP is that the plan can be kept open for 35 years. The contributions can be withdrawn at any time tax-free, and the grant and investment income can be used to pay for most post-secondary programs, including short-term studies and certificates.
Keeping an RESP open a little longer gives those who choose to postpone or prolong their post-secondary studies the opportunity to receive benefits from the RESP.
7. An individual RESP gives you the greatest flexibility. You can choose how much and how often to make contributions, plus you can choose the amount and timing of payments. Another good reason to choose an individual plan – aunts, uncles, grandparents and friends can help make your child’s future education possible.
It’s never too late to take advantage of government grants, tax-free earnings and compound growth. Enter for a chance to win a $5,000 individual RESP from Knowledge First Financial.