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What is RESP?
An RESP is an education savings plan enrolled under Canada’s Income Tax Act, which is set up with the end goal of giving money related help to a recipient.
Registered Education Savings Plan is an ideal solution to help save for the future of your child. It helps parents invest in their child’s education after high school.
Criteria of RESP
There is no much rigidity of RESP criteria. Almost every individual is capable to open an account. Do you have a child? Are you the parent or the parents of your kids? Then you meet the criteria of opening an RESP account. Even it is possible to open such account if you are the other friend or relative of the child. But, there is a place for the beneficiary. This is to whom we will provide the sum after maturity. You can give either your or any other person’s name over here. This scheme has another benefit. Any adult opening this account will be able to earn interest. There will be a tax-free facility with this.
WHY SHOULD YOU OPEN AN RESP?
There are many reasons for opening an RESP for a child. Here are just 5:
- Post-secondary educations are only getting more expensive. The average tuition for a four-year undergrad university program in Canada is now $27,300, and that doesn’t include accommodation and food, let alone other expenses. As part of the Maclean’s university guide, the magazine estimates the total annual cost of post-secondary education to be close to $20,000—or $80,000 over four years.
- Free money! (see above). You could save for a child’s education with only your own TFSA, but you’d be missing out on the grants the government kicks into your child’s RESP.
- The money you contribute and invest grows tax-free within an RESP.
- When your child starts receiving payments from the RESP for school, the money will be taxed at their income, and since students are famously broke, their tax bill will be low.
- RESPs have long lifespans. Just because your child might not want to go to school right away, don’t panic, you didn’t save for nothing. RESP accounts can remain open for 36 years, giving kids plenty of time to come around.
RESP grants by income level
|RESP||Up to $45,916||$45,916 to $91,831||Above $91,831|
|Grant on first $500 contributed||$200||$150||$100|
|Grant on remainder of annual contribution ($2,000)||$400||$400||$400|
|Maximum yearly grant||$600||$550||$500|