Education Planning: Why an RESP Is a Smart First Step
- Bronson Fridal
- May 17
- 2 min read
Education Planning: Maximizing the Benefits of RESPs
Planning for your child's post-secondary education is a significant financial commitment. A Registered Education Savings Plan (RESP) offers a tax-advantaged way to save for this goal, with the added benefit of government contributions.
Understanding RESPs
An RESP is an investment account designed to help families save for their children's post-secondary education. Contributions to an RESP are not tax-deductible; however, the investment earnings grow tax-deferred. When funds are withdrawn to pay for education, the earnings and government grants are taxed in the hands of the student, who is typically in a lower tax bracket, potentially resulting in little to no tax payable.
Government Contributions
The Canadian government supports education savings through the Canada Education Savings Grant (CESG), which matches 20% of annual contributions, up to a maximum of $500 per year and a lifetime maximum of $7,200 per beneficiary. Additionally, families with lower incomes may qualify for the Canada Learning Bond (CLB), providing up to $2,000 per child.
Investment Options
RESPs can hold a variety of investments, including mutual funds, stocks, bonds, and GICs. Fidelity Investments Canada offers a range of mutual funds suitable for RESPs, allowing you to tailor your investment strategy to your risk tolerance and time horizon.
Flexibility and Contribution Limits
You can contribute up to a lifetime maximum of $50,000 per beneficiary. RESPs offer flexibility in terms of who can open and contribute to the account—parents, grandparents, relatives, or friends. If the beneficiary does not pursue post-secondary education, there are options to transfer the funds to another beneficiary or to a Registered Retirement Savings Plan (RRSP), subject to certain conditions.
Let's Plan Together
Starting an RESP early can significantly impact your child's educational future. If you have questions about setting up an RESP or choosing the right investment strategy, I'm here to help.
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