Do you have a Registered Education Savings Plan (RESP) for your child?

Did you know that if you open and contribute to a Registered Education Savings Plan (RESP) for your child, the federal government will match 20 cents for every dollar you contribute, up to a maximum of $7,200.00 per child. Anyone can open an RESP for a child - parents, guardians, grandparents, other relatives or friends.  The cost of post-secondary education has been rising faster than the rate of inflation so anything you can do to help your child cover that future cost will give them a great head start.  Funds saved in an RESP can be used for apprenticeship programs, trade schools, colleges, and universities.  You can visit canada.ca for a list of designated educational institutions by province.

The following are the primary benefits of using an RESP for education savings:
1) Funds contributed grow tax-free until withdrawn.
2) The federal government will provide a Canada Education Savings Grant equal to 20% of whatever is contributed up to a maximum of $500 per year or a lifetime maximum of $7,200 per child.
3) Lower income families might qualify for the Canada Learning Bond which provides up to a maximum of $2,000 per eligible child.
Funds contributed to the RESP can grow tax free, however, unlike an RRSP, there is no tax deduction for contributions made. Money paid out of the RESP to fund education costs are taxed in the hands of the student. Since many students have little to no income and receive tax credits for education costs, taking funds out of the RESP to pay for education costs should produce little or no tax bills for the student.

If you contributed $100.00 per month from birth to age 18; the RESP has the potential to grow to $51,665 by age 18, assuming an annual return of 7%. If you could contribute $150.00 per month, using the same assumptions, the RESP could grow to $77,497 by age 18. Even if you start contributions late, adding $100.00 per month for 10 years, has the potential to grow to $20,761 assuming an average annual return of 7%.  Contributing $250.00 per month for 10 years has the potential to grow to $50,507 assuming an average annual return of 7%.  Besides your own contributions, some people have encouraged family and friends to provide funds for an RESP contribution in lieu of purchasing a gift for their child.

If your child does not immediately continue education after high school, the RESP can stay open for up to 36 years, should they decide to attend later. It is also possible to transfer the RESP to a sibling and if there is no sibling, the person who opened the RESP and contributed the funds might be able to transfer the balance of the RESP to their own RRSP for retirement savings; provided they have the available contribution room.

A word of caution - if you have debt, you cannot pay and are considering bankruptcy, RESPs are not protected from creditors. It would be best to deal with your debt prior to starting the RESP. If you already have an RESP and are considering bankruptcy, it is possible to keep the RESP however, as part of the bankruptcy, you may have to pay extra to make up for what creditors would have received if the RESP was liquidated.  If you have debt, you cannot pay and are considering a Consumer Proposal, you would be allowed to keep the RESP by default, provided your creditors accept the Consumer Proposal.

If you are looking for advice, or a second opinion about your debt, it does not cost a thing to talk about your options.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.