As a parent to your children in Canada, one of your biggest concerns might be “What to do” to make the education of your children stay high. In light of the high cost of attending college or university, a serious financial plan for the future is absolutely necessary. One of the best tools for the job at hand is the child education insurance plan, most commonly through its popular version: the Registered Education Savings Plan (RESP). In this blog, we will discuss the key reasons for you to avail of RESP to secure a future for your ward.
- Financial Security for Your Child’s Education
When you open an RESP, you are creating an established account that grows with time — making sure you have the financial means when your child goes off to college or university. Hence, obtaining a quote early for an RESP can let you know the amount you need to contribute on a regular basis to reach your educational targets.
- Government Grants Boost Your Savings
One of the most significant incentives for opening an RESP is the rich flow of government grants that they offer. As an example, the Canada Education Savings Grant (CESG) provides an additional 20% (on the first $2,500 contributed annually) to your RESP up to a maximum of $500 per year and a lifetime maximum of $7,200 per child. This equals free cash to help you to save faster!
- Tax-Deferred Growth
The money you put in the account is invested, and that investment growth is tax-deferred (meaning you don’t pay any taxes on the gains as long as they stay in the plan). This is the feature that allows your savings to accumulate more quickly due to compounding and is also the reason why most scholar plans are viewed as long-term investments.
- Flexible Investment Options
When you create an RESP, you can decide how to invest within it by choosing between shares/stocks, bonds, mutual funds, and GICs. This gives you flexibility to mould your investment strategy according to your risk appetite and financial goals. You can also speak with providers of Registered Education Savings Plans to get an RESP quote that lines up with your family.
- Reduces Financial Burden on Family Finances
By planning early, you reduce the future financial burden that your family will have to bear when everything is present and the tuition bill. The end result is that you can take the bite out of financing your child’s post-secondary education by planning ahead and setting up a RESP.n.
- Multiple Beneficiaries
An RESP could be established for one child or for one or more children. However, if one child ultimately chooses not to attend, you can move the savings to another sibling without tax penalties (so long as the plan allows for more than one beneficiary). This fact makes it the best option for families who have two kids or more.
- Encourages Educational Aspirations
If you have an RESP, your child will be encouraged to set goals. The educational funds provide visibility to the child that there is an entire fund available to finance his or her studies, and thereby, the child has a mind to think of further study without financial hassles. That psychological lift in the trajectory of a student is something money may not buy so easily.
- Withdrawals are Taxed in the Student’s Hands
When the time comes to withdraw money from the RESP for educational purposes, those payments are in the form of educational assistance payments (EAPs). Things are not tax-free—they are reduced by paying a tax rate as a student who probably earns less in a lower tax bracket than parents. This action effectively lessens the total tax liability on the amount withdrawn.
- Availability of Learning Bonds for Low-Income Families
The Government of Canada offers additional financial support for families with lower incomes, such as the Canada Learning Bond (CLB), which can add up to an extra $2,000 to an RESP without requiring personal contributions. Activating this feature requires checking for eligibility and getting an RESP quote.
- Lifelong Learning Plan (LLP) Withdrawals
It is possible for contributors to use their RESP payments under specific circumstances to assist in funding education later in life through the Lifelong Learning Plan (LLP), even though the program is intended for younger beneficiaries. It is its flexibility that makes this plan an option for adults to go back to school and save for it tax-deferred by cashing out his or her own RESPs.
Coming to the end
As the adage goes, education is the key to a brighter future and investing in shares of a child is not just investing in money but about making a difference in the life of a Canadian child. Getting an RESP quote and establishing an RESP are really great first steps to ensure your kid has everything they need to be successful in school and their eventual career. Whether you are looking into the eyes of a newborn or planning for an almost finished high schooler, this is a smart decision that will help ensure that they are well-equipped to excel and not burdened like so many others with student debt.
Know More: Why Does Every Family Need Education Insurance?
Know More: Avoid Common RESP Mistakes Before Applying for RESP
Know More: Individual or Family RESP: Which Is Right for You?