The RESP is no doubt a great strategy to start saving for the future of your child. We all agree that the cost of secondary education is on a rise and there is a major need to start saving from today. In case you are not aware; there is free money available for the education of your child that you might not be taking advantage of yet.
Are you utilizing the benefits of RESP?
A registered education savings plan is an account that is registered with the Canadian government. This is however, available even if you contribute no funds into the account. Moreover, the federal government may also add to your account with education grants. Also, these savings increases tax-deferred until withdrawn.
The benefits of an RESP can be obtained easily as the average income families receive CESG sooner. That is almost 40% each year with the contribution on first $500. However, the maximum grant of CESG and ACESG (combined) is of $7,200 per child.
How to withdraw money from RESP?
A person can withdraw money from the RESP account only once the child is graduated from high school. The benefits of RESP can be received once the beneficiary is enrolled in a full-time or part-time educational program (post-secondary). Only then can money be withdrawn on his or her behalf and that is to pay off their studies expense using the RESP account.
How much amount can be withdrawn each year?
For this, it is recommended to consult a professional tax advisor. Also, while withdrawing the amount from the RESP account, it is important to always direct the financial institution as to how much funds should be withdrawn from the contributions (PSE). Similarly, how much funds should be withdrawn from the EAP – non-contribution fund.
How much amount can be contributed to RESP?
As much amount as you contribute, the government of Canada will give 20% of that amount. This amount will be up to a grant of $500 (maximum) per year for an individual child. That is, the beneficiary of the RESP may receive the maximum of $500 grant per annum and for that, a person would need to contribute up to $2,500 each year, to your RESP.
What happens to the unused money?
In the case, the money remains unused or the RESP closes or expires, the money from the Canada Learning Bond will eventually return to the Canadian government. Moreover, all the other money of the account will then return to the original depositors of the money.
Remember that an RESP account remains open for up to 36 years, therefore, in the case your child does not seek further studies after the high school, there will still be time for you to take advantage of this money as there will still be a time period for which money will be available in the account.
In bottom line
While this account might not be as user-friendly as any other bank accounts, a person should always take advantage of it as there are various plans available to save your child’s further education.