Saving For Education, A Child’s Play

by Phume Mdluli

Education opens doors to better employment opportunities and wage conditions that are often more attractive. However, nowadays, the debts accumulated throughout the course of studies may contradict the old saying: “Who gets educated is getting richer. Debt delays projects and discourages young people from pursuing post-secondary education. While studies may be very expensive, they remain an excellent investment.

A Registered Education Savings Plan (RESP) is an effective way to help parents or grandparents finance their children or grandchildren’s education and avoid debt. The RESP is a savings product specifically designed to raise capital for post-secondary education. In fact, up to $ 50,000 can be deposited for each child, which will grow tax-free and part of which will generate generous grants from both levels of government. In due course, the accumulated nest egg will be used to finance post-secondary education and other educational expenses.

What type of RESPs should I choose?

Before proceeding, it is important to get information from the various companies about the types of plans offered and their respective conditions, thus choosing the one that best meets your needs. Knowledge First Financial is one of the companies which is well known and trusted in Canada for RESP plans.

The individual RESP is by far the most flexible plan. It does not impose any relationship between the subscriber and the beneficiary. The subscriber decides the frequency and amount of contributions and selects the types of investments according to the investment horizon and its risk tolerance. In addition, under certain conditions, it allows transfers between sibling RESPs without penalty or refund of Canada Education Savings Grants. Knowledge First Financial Reviews will give you a clear idea on which plan to choose.

The family RESP

In this a subscriber can appoint several beneficiaries, provided they are all linked by blood or adoption and are under 21 years of age. The collective RESP pools the capital of several subscribers. This is a less flexible regime for both investment choice and disbursement, since the income generated on contributions will be distributed to the benefit of the group if the child does not pursue post-secondary education.

How does an RESP work?

In practice, the subscriber (the person who opens the plan) makes contributions on behalf of the child. Amounts deposited are administered by the provider (institution where the plan is open), which is responsible for asking for incentives and grants to governments. Once the Designated Beneficiary reaches age 16 and is enrolled in an eligible post-secondary program, the Subscriber may apply to the Provider for the payment of an Educational Assistance Payment and recover Contributions to the beneficiary. Whatever the choice, the contributions remain tax-free upon withdrawal. Educational assistance payments include grants and income accumulated in the RESP; these amounts are taxable to the beneficiary in the year in which they are received. As students generally have low incomes, the tax paid should be minimal or non-existent. For the first 13 weeks of full-time post-secondary education, the EAP amount cannot exceed $ 5,000 ($ 2,500 for part-time studies). However, there is no limit in the future.

How to get the most out of it?

Early: The sooner the plan is opened, the more time the contributions and subsidies will grow tax-sheltered, the more quickly accumulates and the saving grows.

Develop an investment strategy *: Focus on growth stocks when the child is very young and secure a portion of the RESP as it approaches post-secondary education.

Disbursing gradually: By doing so, it is possible to benefit from a lower or no tax rate.

Getting Informed: As an RESP is subject to a significant number of rules and conditions, it is always best to seek professional advice to make sound choices at each step: from the opening of the plan to the disbursement of funds.

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