Do you keep meaning to open an RESP for your kids but never quite get around to it? The earlier you can start saving for your children’s education, the better, but at the same time, it’s never too late! Here are some great reasons why you should get started with an RESP as soon as you can.
If you open an individual RESP, it’s entirely up to you when and how much money to contribute to an RESP, up to a lifetime limit of $50,000. In a year where money is tight, you can put in less money, or hold off on contributions altogether and catch up later. Unused contribution room is carried over to future years, so you never lose the opportunity to put in more.
One of the very best reasons to open an RESP? The government will match a percentage of your contributions! Any money you put in, up to $2500 per year, will be matched at 20% by the federal government. If you can contribute the full amount, this means your child’s RESP will receive an additional payment of $500 each year!
Lower-income families may also qualify for an additional grant issued every year they remain eligible, independent of contributions.
Money in an RESP, along with any applicable government grants, will continue to grow in interest and investment gains, year after year, tax-free! Of course, the funds will be taxed when your child withdraws from it for school, but since he/she is unlikely to be earning significant income when they start post-secondary studies, the tax rate will be minimal.
The earlier you can start saving in an RESP, the longer the funds will have to compound in growth.
If saving for post-secondary seems like a daunting task, it doesn’t have to be. Anyone can contribute towards an RESP, including grand-parents, extended family members or friends. The money can be pooled together in one plan, or each party can open their own, keeping in mind the maximum limit is per beneficiary, not per plan.
For example, some grandparents may prefer to invest funds in your child’s future rather than buying toys for special occasions. And depending on their age, your child can even start contributing to their RESP themselves, in the form of job earnings or birthday money. As a result, you may find it easier than expected to reach the RESP goals you have for your child.
If your child decides not to pursue post-secondary education, you still have options with an RESP. For one, there’s no rule that the money must be used immediately after high school. You can keep an RESP open for up to 35 years. And they’re not limited to traditional post-secondary options either. RESP funds can be directed towards part-time, practical education or trades training. You can also transfer the funds to another child.
RESPs help boost the funds you put away for your child in a way a conventional savings account never can. Take advantage of these benefits for your child’s future!