RESPs

Investing in your children’s future is something that all parents want and RESPs make it simple to save for their post-secondary education. Saving for education is also a gift that can bring long-term benefits.

The Conference Board of Canada, an economic and policy think-tank states. "Graduates with a post-secondary credential, whether it's college, polytechnic or university, out-perform and out-earn people without."

Post-Secondary Education certainly helps people earn more but there are other benefits from education that have been identified, including living longer, healthier lives and even being better people by being more civically engaged and volunteering in their communities.

Education is not however a low cost endeavor. The average cost of a year of post-secondary education (undergrad student living off-campus) is approaching $20,000 annually.

1% Extracurricular

2% Daily travel to and from school

3% Alcohol

4% Books and Course Materials

4% Travelling Home

5% Food on Campus

8% Groceries

34% Tuition

40% Rent

https://www.macleans.ca/education/uniandcollege/what-does-a-university-education-cost-in-canada/

Even living at home where most of the living expenses maybe covered, the cost of tuition, course materials and travel are around $10,000 and tuition costs are increasing at 2 to 3 times the rate of inflation.

Starting early and investing regularly is key to the success of your educational savings plan.

Six Benefits of an RESP


1.
Government Grants – The federal government offers up to $7,200 per child for post-secondary education

2. RESP savings grow tax free – Your contributions do not provide tax deductions like an RRSP, but they do generate tax free growth and compounding on both your contribution and the government grant until withdrawn

3.
Education Assistance Payments (EAPS) and Accumulated Income Payments (AIP) are taxed in the hands of the student – The EAP is the grant and the AIP is investment earnings of the RESP and is claimed by the student. Since many students have little or no other income, they can usually withdraw the money tax-free.

4. Your contributions are tax free - The money that you have put in the RESP is returned to you, tax-free.

5.
Time to make decisions - RESP accounts can stay open for a full 35 years so your child doesn’t have to make immediate decisions once they leave high school or they can delay using the funds for advance degrees such as their Masters or Ph.D.

6.
Flexible Investment Options - There is a wide range of investment options available for RESPs. Examples: stocks, bonds, mutual funds*, GICs. Let one of our Advisors guide you on the solution that is right for you.

How the RESP works

The federal government through the use of Canadian Education Savings Grants (CESG) offers an incentive for you to save for your children.

The CESG will add 20% to the first $2,500 of your annual RESP contribution resulting in an extra $500 per year towards a child's education (up to a lifetime maximum of $7,200 per beneficiary). If you miss a year or are unable to contribute the full amount eligible for the grant you may catch up through additional contributions in future years of up to an additional $2,500 in a calendar year (this will be eligible for the grant as long as you have not reached the lifetime maximum of $7,200 in grants).

There is also additional grant for lower income households however the lifetime maximum grant remains $7,200.  There is also one additional benefit called the Canada Learning Bond (CLB) for children from low-income families. No personal contributions to an RESP are required to receive the CLB. The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:

  • $500 for the first year of eligibility
  • $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15)

 

Canada education savings grant summary chart

Adjusted income for 2017

$45,916 or less

  more than $45,916 but less than $91,831

More than $91,831

CESG on the first $500 of annual RESP contribution

40% = $200

30% = $150

20% = $100

CESG on $501 to $2,500 of annual RESP contribution

20% = $400

20% = $400

20% = $400

 

 

 

 

Maximum yearly CESG depending on income and contributions

$600

$550

$500

Lifetime maximum CESG for which you may qualify

$7,200

$7,200

$7,200

There are currently no annual contribution limits (lifetime maximum of $50,000), however, you can receive the Canada Education Savings Grant (CESG) only on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists.

What if Scenarios?  

1. What type of educational courses can I use the RESP for

The student must be enrolled in a qualifying educational program. This is defined as an educational program at post-secondary school level, that lasts at least three consecutive weeks, and that requires a student to spend no less than 10 hours per week on courses or work in the program.

This includes students attending a post-secondary educational institution and those enrolled in distance education courses, such as correspondence courses, provided by such institutions.

A post-secondary educational institution includes:

  • a university, college, or other designated educational institution in Canada;
  • an educational institution in Canada certified by Employment and Social Development Canada (ESDC) as offering non-credit courses that develop or improve skills in an occupation;
  • a university outside Canada that has courses at the post-secondary school level at which the beneficiary was enrolled on a full-time basis in a course of not less than three consecutive weeks; and
  • a university, college or other educational institution outside Canada that has courses at post-secondary school level at which a beneficiary was enrolled in a course of not less than 13 consecutive weeks.

List of designated educational institutions

https://www.canada.ca/en/employment-social-development/programs/post-secondary/designated-schools.html

2. What if your child does not attend a post-secondary institution?

Your contributions can be returned to you tax free and you can transfer up to $50,000 in income earnings into your RRSP. In this scenario the Grant is returned to the government. (Rules and conditions apply).

In order to set up an RESP for your child or grandchild who are 15 years of age or younger, you will need the following:

The full legal name of each child

A S.I.N number for each child

The date of birth of each child

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-education-savings-plans-resps.html


**Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently and past performance may not be repeated. ®Credential is a registered mark owned by Aviso Wealth Inc. and is used under license.       

 

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