There’s no doubt that post-secondary education costs are high and are expected to rise even higher in the years to come. According to researchers, a basic university degree could cost as much as $125,000 by 2037!
For parents living in Canada, the best way to pay for your children’s education is by opening an RESP. If you haven’t done so, here are five reasons why you should consider investing in RESPs as early as possible.
- To save money more conveniently for your child’s education
RESPs (Registered Educations Savings Plans) are savings vehicles that were introduced by the Canadian government in 1998 to assist parents in pooling money for their kids’ post-secondary education. Through RESPs, parents and other well-wishers can contribute up to $50,000 per child with the final amount being tax sheltered.
Assuming you have an account with an RESP but you’re struggling financially to make payments, you can apply for the Canada Child Benefit (CCB) grant as a boost. This is a savings initiative that was introduced in 2016 by the Canadian government to help middle- and low-income families support their children’s education programs. On average, a family can receive up to $6800 from this program per year. It should be noted that only parents with RESP accounts are eligible to receive these payments. To learn more about the different grants available, you should contact an RESP advisor from Heritage RESP. The Heritage RESP reviews online are great and the service provider comes highly recommended.
- To avoid taxation
This is one of the most appealing benefits of an RESP. As mentioned earlier, all payments to an RESP are not tax-deductible. This means the amount can grow at a much faster rate provided the amount remains in the RESP and is within the cap of $50,000. Any contributions that exceed this limit, including interest income, are taxed. A student tax rate is imposed though, which is much lower than an adult’s. Overall, this translates to more savings compared to other savings plans.
Taxation is also carried out upon withdrawal of any amount from the account. Once again, in such a scenario, the capital gains, education grants, interest income and even dividends in some cases, are taxed at a student’s rate.
- You’ll get free money
Only by investing in an RESP can you get to enjoy the financial incentives offered by the Canadian government through grants. By opening an account and making a deposit of any amount, you are guaranteed to increase your total savings by 20 per cent. The 20 per cent is money donated by the government in the form of the Canadian Education Savings Grant (CESG). Through this grant, the government matches the first $2500 deposited into an RESP per year thus giving out $500 in the same period.
Still need more free money? You can benefit by applying for the Additional Canada Education Savings Grant (A-CESG). To get approved, all you need to do is provide proof that you need the additional grant by presenting your income statements and you’ll receive up to 40 per cent more money for the first $500. For the remaining balance that falls between $500 and $2500, beneficiaries will receive contributions at a rate of 20 per cent.
Other grants where Canadian RESP users can receive financial aid include the Canada Learning Bond which has a lifetime grant limit of $2000, the British Columbia Training and Education Savings grant which offers a one-time grant of $1200 and the Saskatchewan Advantage Grant for Education Savings (SAGES) that offers a lifetime educational grant of $4500.
- You’ll have access to different investment options
Unlike other saving and investment options, RESPs offer other investment options except mutual funds and cash. These include stocks, bonds, Guaranteed Investment Certificates (GIC), and Exchange Traded Funds (ETF). By using these different types of investments to secure your child’s future, you not only ensure you are able to save more money but you also mitigate potential risks by protecting your funds against external forces that weaken your odds such as inflation. Depending on the investment you use, your returns may also be considerably higher than if you had just used cash.
