By contributing to an RESP, you will not only have a tool to finance your child’s education, but also to plan for your own retirement.
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With the Registered Education Savings Plan (RESP), you can save money tax-free to finance a child’s post-secondary education. Parents can contribute, but also relatives.
For Daniel Harissa, financial security advisor at Lafond, Financial Services, the RESP should also be part of the long-term planning of families, because it has many advantages.
“I don’t know of an investment that guarantees a risk-free return of 30%, as is the case with an RESP. It is one of the most generous plans, thanks to government subsidies, ”he explains.
In fact, upon opening an RESP, the Canada Education Savings Grant is paid into the plan, which represents 20% of the first $ 2,500 contributed, for a maximum of $ 500 per year and up to up to $ 7,200 per beneficiary. With the Quebec Education Savings Incentive, the plan will also be enhanced by the equivalent of 10% of the first $ 2,500 contributed, to a maximum of $ 250 per year and up to a maximum of $ 3,600 per child.
But that’s not all: if your family is considered low-income and the child is born after December 31, 2003, the federal government will deposit the $ 500 Canada Learning Bond (CLB) into the plan for the child. first year, then $ 100 per year until the beneficiary is 15 years old.
The CLB is paid retroactively as long as the RESP was opened before the child turns 15th birthday. Better still: the rates of the federal subsidy and the Quebec incentive are also increased and go respectively to 40% and 20% of the first 500 dollars contributed.
To be considered low income, a family with three children or less must earn no more than $ 48,535 net (2020 rate).
Therefore, if your financial means are limited, it is still possible to accumulate a significant amount thanks to these grants. And even if you don’t contribute any amount, simply opening an RESP guarantees you receive the CLB.
Roll to your RRSP
A good thing to know: the contributions always belong to the subscriber, even if the subsidies and the interest generated since the opening of the account go to the beneficiary. This means that as soon as the first educational assistance payment has been made to the child, nothing prevents you from recovering your contributions. “From then on, we could roll over these sums without tax in their own RRSPs,” explains Daniel Harissa.
Note that the contributions are not taxable, only the subsidies and the interest are at the exit. However, even if this money is deposited in the parent’s account, it is the beneficiary who is taxable. “Since a young person’s income is generally low, this tax will be minimal or non-existent,” says Daniel Harissa.
- There is no annual contribution limit to an RESP, but be aware that the cumulative contribution limit in a plan is $ 50,000 per child.
- Schedule RESP disbursements and withdraw grants first. Because if there is any left in the RESP at the end of your child’s studies, they will have to be repaid to the governments, unless they can be transferred to a sibling under a family plan. If there are still contributions and interest, these amounts belong to the contributor and it is he who will therefore be taxed on these amounts.
- There are special eligibility rules for the Canada Education Savings Grant when opening a plan for a child aged 16 to 17. Do not hesitate to seek advice from a specialist to ensure you make the right decisions.
- For more information, visit the Autorité des marchés financiers website: https://lautorite.qc.ca/grand-public/investissements/regimes-depargne/reee-regime-enregistre-depargne-etudes/, And the one of RESP-info.net