Paying For Post-Secondary Education With An RESP

If you have plans to enroll your child or children in college, and you anticipate a need for financial assistance, an RESP is an option worth considering. Helping parents and benefactors pay for the costs of a college education, RESPs or Registered Education Savings Plans can be an effective security measure against an uncertain future. By signing up for such a plan and making the required contributions, you basically ensure the continuing education of your child regardless of your future state of finances.

In addition to the funds contributed by the plan holder or subscriber, Registered Education Savings Plans in Canada may provide additional funds to the beneficiary by way of national and provincial grants. One such grant is the Canada Education Savings Grant (CESG), in which the government matches 20% of the total annual contributions made to the plan until the beneficiary turns 18. In order to qualify for this grant, beneficiaries should be younger than 18 when he or she is designated a beneficiary by the plan’s subscriber. This contribution can be invaluable with regard to making the cost of a college education more affordable.

RESPs also earn interest and investment growth income from stocks, bonds, GICs, and mutual funds, which further add to the plan’s value. Better still, all funds, grants, interest, and investment earnings are added to the subscriber’s contributions, and they remain subject to the same tax deferred status as well.

The only time the funds in the RESP are taxed is when the beneficiary enrolls in college and receives payments. Even so, students are typically required to pay only the lowest tax rates, and in some cases, they may not even have to pay any taxes at all.

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