A Registered Education Savings Plan or RESP as it is commonly referred to, is a special savings account for parents who want to save for their child’s post-secondary education. That’s right, this is how some students are able to get through school! So what are the pros and cons of opening an RESP? We break down all the things you need to know.
How do RESP’s work?
RESP’s are regulated accounts opened in the name of your child who will use this money when it’s time to head to school. They can be opened by anyone (with permission of course) and can have other family members to contribute to it, as it is a regulated account specifically used to save for future education. There is a $50,000 lifetime maximum (per child) that you can contribute and invest in numerous ways.
Why do people open RESP’s?
There are many benefits to opening an RESP. One of the big ones is that the federal government adds to your RESP savings each year through the Canada Education Savings Grant or if you qualify, lower-income families may also be eligible for the Canada Learning Bond. What does this mean? The government is helping to contribute to your child’s education. Another reason people open RESP’s is that you don’t pay tax on any investment earnings as long as they stay in the RESP account, meaning your savings will grow quicker.
What are the things to look out for?
One of the main concerns people have with RESP accounts is not knowing if your child is going to continue to post-secondary education after high school. Because RESP’s are registered under the child name and can only be used for educational purposes, there are limited options on what you can do with the funds if your child decides to not continue with school. Something else you need to be aware of before opening an RESP is once an RESP is closed, the government grants we mentioned above must be repaid. And all gains on the investments that were inside the accounts will then be taxed.
RESP accounts definitely have their benefits if your child decides to continue on with their education. Especially when anyone can set up an individual RESP for your child – not just you. This will help your child’s RESP grow quicker with all that birthday money or other monetary contributions from friends and family.