Contributing to a Registered Education Savings Plan is worthwhile if you are certain that the money contributed will be used for higher education of the beneficiary. Let’s catch up with some more details.
RESP Canada
RESP Canada is a registered investment plan that allows your contributions to grow tax free when the investments are within the account. It is solely open to fund the post-secondary education of the beneficiary.
The main advantage of RESP is that it can be opened by anyone for anyone. It does not matter if the beneficiary and the contributor are related by blood or not. Let’s figure out if contributing to RESP is really worth the hype.
Is RESP worth it?
Contributing to RESP is worth it if you are sure that the funds accumulated will be 100% used for post-secondary education of the beneficiary. It is truly worthwhile for the following reasons:
The earnings that you accumulate within a RESP grows tax-free.
You have the option to invest in shares, bonds, mutual funds, ETFs, GICs, fixed interest etc.,
The following grants are provided by the government
The Canada Education Savings Grant (CESG):
Here the government makes contributions of 20% of your contribution to a maximum of $600 per year and $7,200 lifetime for each RESP beneficiary.
**The Canada Learning Bond (CLB): **
The government contributes up to $2,000 (in the lifetime of each RESP beneficiary) to children from low-income families. The initial contribution starts at $500. You are assessed every year and if you are still eligible you get an additional $100.
The BC Training and Education Savings Grant:
This is available to residents of BC and the government contributes $1,200 to eligible children between the ages of six and nine.
The Quebec Education Savings incentive (QESI):
This is available to residents of Quebec. The government makes contributions of 10% of your contribution to a maximum limit of $3,600 per beneficiary.
Having said all the above, if the funds contributed to RESP are not used for post-secondary education, then the accumulated earnings is taxed at your marginal tax rate plus a 20% fine is levied.
Should you invest in RESP?
Thus, if you have already reached the contribution limits of TFSA and if you are confident about the usage of the contributions, it is worth it to commence and contribute to a Registered Education Savings Plan.