When your children enter the world, you take care of their immediate needs to ensure they’re happy and healthy. However, it can be worth spending some time thinking about their future needs, as well. As they transition through primary and secondary schooling, there will come a time when they start to consider post-secondary education.
College, university, and international academics can all start forming part of your dinner table conversation. It’s around this time you might begin to ask what is a Registered Education Savings Plan(RESP), along with what it could mean for your child. Read on to learn about RESPs and why you should consider investing in one.
What is an RESP?
An RESP, is an education savings tool set up to provide children with a financial head start in post-secondary education. At any age, a parent, caregiver, or grandparent can open an RESP and begin making contributions which will later help you pay for universities, colleges, or any number of educational facilities your children may like to attend. However, the government grants are eligible only for beneficiaries until the age of 17. If a child later decides that post-secondary education isn’t right for them, you or they can withdraw the funds with a few conditions to use them for something else, or transfer it to a Registered Retirement Savings Plan (RRSP).
With more than one child in your household, it can sometimes be overwhelming to think about how you’ll fund multiple post-secondary educations. An RESP can undoubtedly ease some of that stress weighing on your mind.
While you can set up an individual plan for one child, you can also open group or family plans to suit your unique family and financial situation. A family plan allows you to name one or more children to receive the funds.
In contrast, you can open an individual plan with one beneficiary named, and that child doesn’t need to be related to you. A group plan may also be an ideal option, suitable for those who intend to make regular contributions for a child as a collective with other families. Essentially, anyone with a close relationship with a child can ensure they are financially secure for a post-secondary education option in the future.
RESPs Are Easy to Open
Many parents may be daunted by the prospect of opening a savings plan for their children. Fortunately, RESPs are made easy to ensure that every Canadian child has the chance to prosper in post-secondary education. Once you have set up your child with a Social Insurance Number, you can open an RESP through a reputable and secure provider within minutes. It then won’t be long until you’re able to begin contributing your income. The younger your children are when you open your plan, the more money they may have to utilize at a later date – because compounding has more time to work its magic.
Your own contributions into an RESP can offer peace of mind that your children can access much-needed funds. However, by opening a plan, you may also be able to benefit from government grants, such as the Canada Education Savings Grant (CESG).
This government grant matches 20% of your contributions up to $500 per year, or up to $7,200 over the child’s lifetime. There are also multiple provincial education incentives and the Canada Learning Bond. Children can dream big dreams when they’ve got investment income growing in the background until they are ready to head off to college or an educational facility of their choosing.
Once your child is prepared for university, they or you can begin withdrawing the funds they need for tuition, books, education-related costs, and even food in the form of Educational Assistance Payments (EAPs).
However, there is no rush. Your RESP can remain open for up to 36 years. As a result, they don’t have to immediately transition from secondary to post-secondary education if they aren’t yet ready. What’s more, if they decide not to take their studies further, you can either transfer the funds to another child or close the RESP and recoup your contributions. You may also be able to receive your investment income, subject to some conditions, and tax.
The future is in our children’s hands, so it makes sense to arm them with everything they need to lead the way. An RESP can be a fast, easy, and affordable way to ensure your child can be financially prepared for post-secondary education. Now might be an opportune time to look at your plan options.