RESPs: The Best Way to Save For College and University

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Registered Education Savings Plans (RESPs) are hailed as being the best option when saving for post-secondary education for a variety of reasons. Here are four great benefits you can expect when you save money with an RESP.

  1. High “ROI”

Compared to other savings vehicles for education, RESPs are far superior to any other option available in Canada. In a year, RESP holders can realize as much as $500 from their contributions. This sizeable increase in savings comes from government grants and makes a huge difference to your RESP investments. As a parent whose net income is either low or average, an extra $500 going towards your child’s college education fund is a big deal. Through the Canadian Education Savings Grant (CESG), RESP holders are guaranteed to receive an extra 20% in financial aid from the government for the first $2500 they deposit each year. Parents who choose to save the maximum amount of $2500 per year are guaranteed the aforementioned extra $500 in their account up to a maximum of $7,200.

The Canadian Education Savings Grant is provided until a child turns 17 years old. In order to maximize returns offered by this grant, it is advisable to open an RESP account as early as possible, preferably when the beneficiary is just a toddler, in order to receive more grants in the long run.

Another grant that is available to RESP holders is connected to the CESG is the Additional Canadian Education Savings Grant (A-CESG). This grant acts as a supplement to the CESG and has to be applied for separately. Only families with middle- and low-net incomes are approved for this grant. Once approved, however, they stand to receive between 10% and 20% extra on the first $500 they deposit. This means that RESP holders will receive between 30% and 40% of cumulative grants from these two government sources. The rest of the money above $500 is treated to a 20% grant i.e., the CESG.

RESP holders, depending on their geographical location in Canada and the dates their children were born, are also eligible to receive other grants at a provincial level such as the QESI (Quebec Education Savings Incentive); the Additional Quebec Savings Incentive (A-QESI), or The Saskatchewan Advantage Grant for Education Savings (SAGES) to name just a few. Check the guidelines to confirm your eligibility status.

  1. No Taxation

Virtually all other savings options with the exception of TFSAs tax the money held in their accounts. RESP providers such as Heritage RESP offer flexible plans aligned with your needs at every stage. This means any capital gains—interest or even dividends—that accumulate in an RESP are tax-sheltered until withdrawal day. There are many benefits to this. For one, it allows money to accumulate at a much faster rate which encourages even more savings. Secondly, when the time comes for the child to attend college, the amount to be withdrawn is also tax-free. For more information on taxation and other topics related to RESPs you can read more Heritage RESP online reviews and contact them if needed.  

  1. Freedom

With RESPs, depending on the plan that you choose, there are no restrictions whatsoever on who can contribute to a specific account. There are no restrictions on withdrawals as well. Parents can choose to remove their money from an RESP at any moment they choose. If a parent decides to exercise this option before the date the child is ready to go to college, then they will receive the final amount minus grants, essentially the principal invested. In order to access the grant, there must be proof that the child has enrolled for post-secondary education for the grant money to be released.

  1. Avoid College Debt

RESPs make it easier than ever before to avoid college debt. Through the numerous grants availed by the government, parents can easily amass anywhere between $10,000 and $15,000 in lifetime grants. Parents with low-net incomes can also seek multiple small scholarships to supplement the grants. Combine these options with their TFSAs; it’ll more than suffice for a child’s tuition college without applying for college loans whatsoever.

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