The tax-deferred savings plan known as Registered Education Savings Plan is one of the best ways for a Canadian parent to save up for their child’s future. It is so for a number of reasons. The following are just some of those benefits:
- Better education guarantee – RESPs allow you to set aside a certain sum of money on a regular basis, so your child can have access to better education when necessary. The funds withdrawn can be used for education-related expenses including tuition, living costs, books, and travel.
- Contributions from the government – The Canada Education Grant program or CESG enables you to receive contributions from the federal government on your child’s RESP. This contribution can be up to $500 a year, as the government will contribute an amount equal to 20% of the first $2500 you contribute in a year.
- Flexible contribution plans – A major benefit of the Registered Education Savings Plan is that it offers a high level of flexibility for contributors. You get to decide the amount that should be withdrawn as well as the maturity of the plan. Also, if the funds are not paid out to the beneficiary for valid reasons, the accumulated amount can be transferred to your or your spouse’s RRSP account, given that there is available contribution room.
- Choice of plan – When starting an RESP, you have the option of going for an individual plan and a family plan. Both have varying benefits depending on the needs of different individuals. In an individual plan, there can be only one benefit. If you need to have multiple beneficiaries, you could go for the family plan.
- Savings on tax – When making contributions to an RESP account, your contributions are not tax deductible. However, the beneficiary may need to pay only little or no amount of tax on the funds owing to low income as a student. The taxes on withdrawal are charged to the beneficiary and not the contributor.
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