Saving For Your Child's Education Through an RESP

If you have children or plan on having children, you need to ensure that you and your family are financially prepared. Likely the biggest cost that you will incur is your child’s education costs. An RESP is a government approved registered savings plan which is extremely useful in saving for your child’s post secondary education. This registered plan allows family and friends to invest in a child’s education and the funds are tax free throughout the life of the plan.

One benefit of an RESP is that it has a tax deferred investment growth. Throughout the life of the plan, the investments are completely tax free. When any funds are withdrawn, only the growth and grant portion of the RESP is taxable so long as the funds are being used for the purpose of education. Another advantage to these plans is their flexibility. There is no financial commitment and although some banks have a minimum contribution amount per month, it is generally as low as $20-$25. The maximum amount that is eligible for a government grant is $50,000 per year. Through the Canada Education Savings Grant, the federal government will pay 20% of the annual RESP (or a maximum of $500) into the fund per child.

By opening up an RESP when your child is still very young, you will ensure your investment can grow throughout the years and that he or she will have no financial worries by the time they decide to go to college or university. If your child decides against post secondary education there are still options available. Some plans allow you to select another beneficiary so if you have another child who will be attending school you can transfer it into their name. You can also withdraw the funds in cash subject to tax and any penalties that are charged by the bank. If you would like to withdraw the funds but not pay tax you can as long as you pay back any grants that were contributed. Some plans even give you the option of transferring the money saved into you or your spouse’s RRSP which will let you avoid being taxed. Finally, you have the option of donating the whole RESP fund to a qualifying educational institution.