An RESP is also another form of investment that is used to go towards your children’s post-secondary education. Anyone can open up an account for your child and you are able to change the beneficiary if your child decides to not pursue college or university. Each child gets a lifetime maximum contribution room of $50,000 and only $36,000 will attract government grant matching. However, the advantage of the RESP is that it allows you to accumulate investment income on a tax-sheltered basis.
RESP’s are designed so that the money stays invested until the child is ready and enrolls in a qualifying educational program, at the point education assistance payments (EAP) can be made from the RESP to the child. Investment growth and government grants are then taxable in the hands of the child but because they are in such a low tax bracket they most likely will be paying very little or no tax at all. The government has created the Canada Education Savings Grant (CESG) program where they contribute an additional 20% of your contributions. There is also another grant known as the Canadian Learning Bond, which is based on income, that allows you to receive an additional $500 on your first year and another $100 for each year after that you are eligible.
When it comes to our children we want to make sure we are able to provide them with everything they need to succeed in life which includes the opportunity to an excellent post-secondary education. However, unless you decide to take out a loan it may not be easy to come up with all the money for a four-year program on your own. According to Stats Canada in the last ten years, tuition fees have risen 135% with projections of if costing $121,600 by 2032.
Given the cost of post-secondary education, it is wise to start thinking about saving as early as possible. When you make regular contributions you are able to achieve your objective faster. Regardless of the child’s age, it’s never too late to invest in their future.