These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Registered Education Savings Plans (RESP) are popular savings plans to set monies aside for children’s education. Similar to RRSP and TFSA, RESP accounts enjoy certain tax advantages and are subject to contribution limits. There are a number rules regarding contributions and withdrawals, so while the concept of setting money aside for education is simple to understand, speak to an investment specialist to maximize the value of these plans.
Monies deposited to an RESP are not tax deductible like an RRSP. Annual contributions to a maximum of $5000 per year can be made to a lifetime maximum of $50,000. The first $2500, of contributions receive an additional $500 Government of Canada grant (20%) to a lifetime maximum of $7200.
RESP are intended to help finance post secondary education (university, college, trade school). Funds withdrawn to pay for post secondary education are treated two ways. The original contributions and government grants are received by the student tax free. Investment gains (interest, dividends, capital gains) are taxed in the student’s hands. Given students have limited/minimal income, taxes will be nil or minimal.
RESP must be used by the 31st anniversary year of the plan and completed used by the 35th year of the plan. Should children not attend a qualifying post secondary institution, the government grants must be repaid. Original contributions can be distributed a number of ways, however if withdrawn as cash, the investment gains will be taxed in the contributors hands at their tax rates.
Given the various componenets involved with RESP, it is best to seek advice from an investment specialist to maximize the benefits of RESP in combination with other investment vehicles. Shop around and ensure you understand the components of different RESP options. There are many differences between RESP and Educational Scholarship plans. An investment specialist will also help ensure the investments held in the RESP are best aligned with your family situation and risk tolerances.
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