In the previous issue, we have elaborated upon the meaning and features of the RESP plan, and the worth of this unique saving initiative of the government is highly appreciable; yet the facts/statistics indicate that enough qualified people do not take full advantage of this wonderful plan.

Recognizing the importance of higher education for children, the government generously allocates funds to support parents in this endeavour through the Canadian Education Savings Grant (CESG) wherein it matches 20% of the money that parents deposit into an RESP for their child. As the intent is to help everybody irrespective of their socioeconomic background, the government has gone a step further and helps low-income families through Canada Leaning Bond. Through this, the government will deposit up to $2,000 in your child’s RESP in gradual instalments over the period of 16 years- $500 in the first year and $100 annually for the next 15 years. But ironically in 2018 alone, $4 billion of federal funds allocated to the CLB went unclaimed because an estimated 1.8 million children weren’t signed up to collect the benefit.

This is probably due to the fact that people are either ignorant of the higher costs of post- secondary education, or don’t have a clear idea about the application process of an RESP. As per Statistics Canada, the average cost of 1 year of undergraduate tuition in Canada nearly tripled from $2,333 to $6,191 between 1995 and 2015. As these costs can seem unaffordable for many people later, to ensure that their children get quality education and proper training for their career, parents need to start investing for their kids’ post- secondary education at an early stage.

The Registered Education Savings Plan (RESPs) is a regulated account that can be effectively used for saving money for your child’s postsecondary education of any nature viz. university, college or vocational school.

Now, as we have seen that the government makes a contribution to help you save for your child’s education, some people tend to believe that it is simply a way to get ‘free money’ from the government.

But is this the only reason why you should feel motivated to invest in RESP?

Certainly not! RESP is not only a way to get free funds from the government; it has numerous additional advantages that are quite appealing.

Your savings grow tax-free

The greatest feature of an RESP account is its tax-free advantage. The government doesn’t charge any tax on the investment earnings (as long as they remain in the plan). Furthermore, when your child needs to withdraw the money for his/her postsecondary education, the contributions you made are withdrawn tax free as well. Though the portion of government grants and capital gains withdrawn as Educational Assistance Payments (EAPs) are taxable, since they are taxed in your child’s hands who is a student, the taxable amount is negligible.

Number of investment options available

The RESP funds can be invested in a number of funds such as stocks, bonds, mutual funds and GICs. While some plans let you decide how to invest your savings, others invest your money for you.

Help for low income families

To help people from low income families, the government provides additional grants. If your household’s net income is less than $97,069 (2020), you qualify for the additional Canada Education Savings Grant (CESG). Also as discussed above, if you are unable to invest for your child’s education due to low income, the government helps you through DO YOU REALLY NEED FREE MONEY FOR YOUR CHILD FROM THE GOVERNMENT? a unique resource called the ‘Canada Learning Bond’ (CLB) that was introduced in 2004. You are not required to make any contribution at all. The government will deposit up to $2000 in your child’s RESP in gradual instalments over the period of 16 years- $500 in the first year and $100 annually for the next 15 years. But that doesn’t imply that late registrants will get less benefit. You can claim CESG retroactively if you started the RESP later and missed the first few years of grants.

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Sandeep Ahuja