There are various benefits of contributing into a RESP. These include tax advantage, receiving of government grant, available investment options etc.
What is RESP Canada?
There is an increase in applying for student loans in Canada and loans generally incur high interest rates. RESP is registered with the federal government of Canada and is one of the best options to save up for and fund for post-secondary education of Canadian citizens.
The parents or any other contributor can open a RESP for the beneficiary and can start contributing for the beneficiary’s education until he or she turns age 31.
Benefits of RESP Canada
Let us explore the benefits of Registered Educational Savings Plan (RESP), Canada.
1. Tax-Advantageous Vehicle
The income returns, capital gains, dividends, interest received within RESP is not taxable. As long as the funds are within the RESP the money is not taxable. When a beneficiary takes money out for secondary education, the funds are taxed, however, students are generally under low tax brackets and will not be charged a huge tax liability.
2.Qualified Investments
Within a RESP, you can invest in shares, bonds, Exchange Traded Funds (ETFs), mutual funds, Guaranteed Investment Certificate etc.,
Contributors
Anyone can contribute to an individual RESP. They can be blood related like parents, aunts, uncles or grandparents or they can be strangers, friends, or neighbors.
3. The Canada Education Savings Grant (CESG)
The government contributes 20% of your contribution into your RESP capped at $500 per year and $7,200 in lifetime.
Canada Learning bond
If a RESP beneficiary is from a family that has low-income earnings, born after 1at January 2004, and is a resident of Canada with a valid Social Insurance Number (SIN), the beneficiary becomes eligible for Canada Learning Bond grant. The beneficiary gets $500 in the first year and is assessed every year thereon, and receives $100 in every qualifying year with a maximum cap of $2,000.
RESP Canada Pros and Cons
Every savings plan that is tax advantageous has its own rules. If the beneficiary decides not to use the funds for educational purposes, then the funds incur tax plus 20% penalty. In addition, all the grants received over the lifetime the RESP was open, must be returned to the government.