RESP (Registered Education Savings Plan)is a financial aid that allows parents to invest in their children’s’ education by contributing money to an heritage RESP savings plan. Funding the education of your children is expensive but opening a RESP you will be able to invest money that will multiply over time. When the time comes, to pursue post-secondary education, you can withdraw the funds required. When using RESP, you have the upper hand to select the investment plan that best suits your needs. The reasons below are why you should jump at the opportunity to open a Registered Education Savings Plan.
1. Government grants and incentives.
The government of Canada is very supportive of the post-secondary studies of children; therefore, it plays a significant role in encouraging individuals to save for their children’s’ higher level education. If you are a recipient of RESP, each year, you stand a chance to receive a grant of 20% of a dollar invested from the Canada Education Savings Grants. Individuals from low-income families also receive grants from the provincial governments which assist your savings to grow substantially. Ultimately, everyone who invests in RESP will accumulate at least 30% returns of the investment regardless of their financial background.
2. Tax-free savings
RESP is deductible from your taxable income; however, the capital and earnings within it are sheltered from tax. The income generated from RESP savings is exempted from any form of taxation, as long as it remains in the plan. It will give your investment earnings an opportunity to multiply. Even during withdrawals, the money is taxed in the child’s hands which results to little or no tax at all.
When the time comes o pay for post-secondary studies expenses, you have an option to decide the amount of money you would like to withdraw. Heritage RESP allows you to obtain sufficient money to cover the education cost. In case your child decides to take some time off school, you have an allowance of up to thirty-five years to use the funds. Also, if the child does not want to pursue post-secondary education altogether, you can choose another beneficiary in their place.
4. Pre-funding a substantial expense
Coming up with the total amount of money needed to cover tertiary level education is not easy. Regardless of one’s financial capabilities covering the cost of your child’s college expense can be financially crippling. However, with RESP that you have funded of over the years, you will end up incurring minimal or even no financial demands when your child begins university or college.
5. Routine savings account
Putting post-secondary education money in a separate account is a smart move if you want to attain such a significant financial goal. Since Registered Education Savings Plan is different from their typical savings account, parents will be able to dedicate savings that are exclusively meant to heritage RESP fund tertiary level studies for their children. Depending on their choice of the investment plan, they will accumulate the required amount of funds without the risk of spending it on other needs.