What You need to Know about RESP and its Benefits

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 The funds withdrawn can be used for education-related expenses including tuition, living costs, books, and travel.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 You get to decide the amount that should be withdrawn as well as the maturity of the plan.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.

What You Need to Know about Registered Education Savings Plan (RESP)

The Registered Education Savings Plan or RESP can be defined as a contract or an agreement between two parties in which an individual (subscriber) can declare one or more beneficiaries, agreeing to make financial contributions for them. The agreement requires the other party (promoter) to pay EAPs or educational assistance payments to the beneficiaries. Let's take a quick look at some important facts you need to know about this savings plan:

• Normally, you can make contributions to family plans in the case of beneficiaries who are below the age of 31 at the time of contribution. You can, however, make transfers from one family plan to the other even for beneficiaries over the age of 31.

• Since 2007, there has been no limit on the annual contributions you make to RESP and the lifetime limit of contributions that can be made for one beneficiary is $50,000. 

• However, any payment you make under a designated provincial program or the Canada Education Savings Act will not be considered when determining whether or not the lifetime limit has been exceeded.

• When excess contributions are made, subscribers have to pay taxes of 1% per month on their share if the excess has not been withdrawn by a certain deadline. So, you can easily cut down on the liable tax amount by withdrawing any excess contribution.

• If, for some reason, the promoter does not pay out the contributions you have made to the beneficiary, you will receive the accumulated sum by the end of the contract. You would not need to declare this amount as your income.

These are just some of the basic facts you need to know about the Registered Education Savings Plan, so you can get a rough idea of the agreement before making your contributions. Whether you wish to contribute to the RESP for your children, spouse, or any other beneficiary, you can learn more about the plan to help you make the right decision.

                                                                                                 

                                                                                                                                            

Is your child interested in becoming a Doctor or Lawyer?

Parents always want their children to succeed, and for this reason, try to encourage their children to follow specific career paths that they believe will offer prestige and a good income. Doctor, lawyers and engineers have long been prescribed for this reason (you may even be a parent that is encouraging your child to become a doctor, lawyer or engineer!).

But, have you stopped to think about how much it would cost to be a doctor or engineer or lawyer? While it may be great to have your child study in either one of these fields, are these fields that are affordable to study?

Let’s have a quick run at the numbers. (For the sake of simplicity, we’ve looked at University of Toronto’s numbers.)

Doctor

$158, 116

Lawyer

$ 91, 371

Did you know the graduating 2014 class has the highest debt of any graduating class from University of Toronto’s Faculty of Law?

Engineer (Materials and Science Engineering)

$ 49, 452

These are just basic numbers for domestic students, if you specialize, do another program, live on residence or anything else, these numbers can just be the tip of the iceberg! Education isn’t cheap!

How much did tuition cost you when you were in school?