Registered Education Savings Plan (RESP)
Candlefocus EditorThe RESP is based on the premise that parents and guardians can save more in order to have enough money to cover the future cost of post-secondary education. The plan allows parents and guardians to deposit money into a special account set up in their child's name. The money, or contributions, in the account can grow over time, and the money can be withdrawn by the child when they are ready to attend post-secondary school.
One of the main advantages of the RESP is the Canadian Education Savings Grant (CESG). The CESG is a government program that matches the contributions that parents make to their child’s RESP. For every dollar that you put into the account up to a maximum of $2,500 per year, the Canadian government will match 20% of it (up to a maximum of $500 per year).
The money from an RESP can be used for any post-secondary school related expenses, such as tuition, textbook, travel expenses and accommodation costs. The money can also be used for special programs such as apprenticeships or trades.
Another benefit of having an RESP account is that the money can be invested in different types of investments such as mutual funds, exchange-traded funds, and bonds. Some of these investment vehicles are managed by money professionals that aim to generate earning growth.
Finally, the RESP has lower tax rates on income earned in the portfolio than other types of investments. You pay only 15% on income earned in most RESPs. This rate is usually lower than other savings accounts, making an RESP a very attractive investment option.
In summary, the Registered Education Savings Plan (RESP) is a valuable savings option for parents and guardians who want to give their children the best chance at success by helping them fund their post-secondary education. It allows you to make regular contributions that are supplemented by the Canadian Education Savings Grant (CESG). It also offers lower taxes on income earned in the portfolio and provides a variety of investment options that are managed by money professionals.