💸 All About RESPs
A Registered Education Savings Plan (RESP) is an investment account designed to help parents save for their child’s education. Like other tax-shelter accounts, an RESP allows investments inside the account to grow tax-free. That means you don’t pay taxes on capital gains, no income taxes on interest, and no tax on dividend payments.
The significant benefit of RESPs is the Canadian Education Savings Grant (CESG). The CESG is essentially free money. For every dollar you put into your child’s RESP, the government will put in up to 20 cents.
If you put $2,500 in your child’s RESP, you will receive $500 for a total of $3,000.
🗹 3 Reasons You Should Open An RESP
1. Post Secondary education is getting more expensive. The burden on students can last years. If you alleviate some financial pressure for your child, you are giving them a massive head start.
2. Tax-free growth. Not only are you getting up to a 20% return, but you can also invest that money for further growth without paying tax. With 20% from CESG and another 8% in the stock market, your child’s RESP will give you a total return of up to 28%!
3. If your child does not go to school, you can transfer that money back into your RRSP. The CESG grant will be deducted, but you can still keep the return you earned.
Need I say more?
📚 Additional Resources
2. RESP Questions Answered. From how to open one to how to invest using the RESP, this article has the most common RESP questions covered.
3. RESPs are not without fees! Have all your bases covered by educating yourself on fees to look out for.
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