Why RESPs are a good idea:
- The Canadian Education Savings Grant (CESG): eligible beneficiaries receive a 20% basic CESG on the first $2,500 in annual RESP contributions (up to $500 per year). Additional grants may be available based on family income.
- You can collect unused CESG money from as far back as 1998 by making catch up payments (subject to an annual maximum).
- Earnings and the CESG are tax-deferred until the money is withdrawn, and taxed in the hands of the beneficiary who will likely be in a low or no income tax bracket.
- There are lots of options! RESPs can hold cash, term deposits, or other investments; there is no foreign content limit.
- If the intended beneficiary does not attend post-secondary school, and there is no alternative beneficiary, simply withdraw your unused contributions. Transfer accumulated earnings directly to your or your spouse’s RRSP without triggering tax deductions (you must have the contribution room). Return the grant portion to the government.
- Watch your money grow tax-sheltered inside the plan.
- Use RESP savings to pay for tuition, books and living expenses. Most post-secondary schools qualify and some part-time studies also qualify.
What you need to know:
- You can open an Individual RESP for anyone, or a Family RESP for several beneficiaries related to you by blood or adoption.
- Beneficiaries need a social insurance number.
- The lifetime contribution limit is $50,000; there is no annual limit.
- The contribution deadline is December 31 each year.
- You can change the beneficiary if the original beneficiary does not attend post-secondary school.
A Libro Coach or your financial planner can help you set up an RESP for your children. Meet with them today to meet the December 31 contribution deadline.
Compliments of Chris White, CFP www.libro.ca
Chris White holds his Certified Financial Planner designation and works at Libro Financial Group’s North Waterloo branch. He can be reached at email@example.com