Yes, you did read that right. There is such a thing as free money and it comes in the form of a Registered Education Savings Plan (RESP). RESPs are tax-sheltered investment plans that can help families save for their children’s post-secondary education. If you have children or grandchildren and you want to learn how to get free money for their post-secondary education, here's what you need to know.
When you contribute to an RESP for your child (or grandchild, etc.), the Government of Canada will provide you with a Canada Education Savings Grant (CESG) where they will match a percentage of your contributions and deposit it directly into the RESP. Considering the cost of post-secondary education — and it's only likely to increase in the coming years — a CESG can make a very big difference for future students and their families.
Here are a few things to consider if you’re thinking about opening an RESP:
In most cases, opening an RESP is a great decision, but it all depends on your particular situation and your long-term goals.
For example, one couple opened a non-registered account and invested $100 bi-weekly but this investment didn’t qualify for the CESG. The total value of their investment in 18 years was $70,801 and they ended up paying taxes on this non-registered investment. However, a second couple invested $100 bi-weekly into an RESP account and they received the lifetime maximum CESG of $7,200. The total value of their investment in 18 years was $97,059 and they didn’t pay taxes on the accumulated growth.
If you are considering opening an RESP for your kids or grandkids, you should speak with your bank, credit union and/or financial advisor to learn more about RESPs and how they can impact your finances.
To access the funds in your child’s RESP, you will need to provide a letter from your child’s education institution confirming their enrollment. Remember, these funds need to cover expenses for their entire post-secondary career, which is about four years for most students, so do not withdraw all of the funds at once. (That could also lead to tax implications.)
But what happens if little David doesn’t go onto post-secondary education, and joins a metal band instead? Don’t worry, you don’t lose the funds.
If you know an RESP is a wise investment, but you don’t know if you can afford to make the contributions, a certified credit counsellor at Credit Canada can help. We’ll review your monthly expenses and make the appropriate adjustments to fit the RESP payments into your budget plan. Give us a call at 1.800.267.2272 to book a free and confidential appointment. You’ve got nothing to lose and potentially thousands of dollars to gain. Your child’s future is definitely worth it!
Topics: Kids and Money, Generation Z, RESPs
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