DEMO's desk...: RESP: Registered Education Saving Plan

Students Now Back in School

Still, Don’t Have an RESP?

With students back at school, the cost of higher education may be top of mind. Are you prepared? The average Canadian university tuition has risen to over $6,300 per year. Combined with room/board, books and other incidentals, a year at university can cost in excess of $20,000!’ Without planning, this can result in crippling student loans, a poor legacy for graduation. As such, it is important to make use of all of the tools available to help ease the cost of education. Yet, according to Statistics Canada, around half of Canadian families still do not have a Registered Education Savings Plan (RESP).

One of the main reasons to consider an RESP is that funds grow on a tax-deferred basis within the plan. Assets may be invested in a wide range of securities. Although contributions are not tax deductible, when investment income and government grants are eventually paid out for approved educational purposes they are generally taxed in the hands of the student beneficiary. This may result in reduced taxes, if any, as the student will likely be taxed in a lower marginal tax bracket. The RESP can also promote gradual and steady savings, which may benefit from compounded growth over time.

CESGs: A “Guaranteed Return”

A key feature of the RESP is that the government offers the Canada Education Savings Grant (CESG), equal to 20 percent of

the contribution made, to a maximum of $500 per beneficiary per year (or $1,000, if there is unused contribution room from the previous year). The CESG is available until the end of the calendar year in which the beneficiary turns 17 and certain conditions apply. CESGs offer a potential lifetime benefit of $7,200 per beneficiary provided by the government, which shouldn’t be overlooked. Did You Know?

  • RESPs can be set up by grandparents. If parents do not have current financial means, this may be a great way to access CESGs for the beneficiary during the age qualification period.
  • RESPs can generally be set up at any age to take advantage of tax-deferred growth (some family plans may have restrictions). However, older beneficiaries may not be entitled to the CESG.

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