A Great Way to Save for Your Child's Education

August 10, 2022

When it comes to pursuing post-secondary education, the associated costs can be a major concern and sometimes the deciding factor. As costs continue to climb, it’s important to save early to cover education expenses. A Registered Education Savings Plan (RESP) is a great option to help Canadians pay for school – with the bonus of government grants and bonds.

RESPs are specialized accounts sponsored by the federal government that allow a subscriber (usually a parent or grandparent) to accumulate savings on a tax-deferred basis to assist with the expenses of post-secondary education for a named beneficiary (most often a child or grandchild). A well thought out RESP investment plan can help you save by taking advantage of tax benefits and government grants.

Did you know?

• RESPs grow education savings tax-free because earnings of the investments inside the RESP accumulate tax-free until they are withdrawn. RESPs can hold a variety of investment options including Guaranteed Investment Certificates, mutual funds or stocks and bonds.

• The subscriber can contribute any amount annually to the RESP up to the lifetime contribution limit of $50,000 per beneficiary. Contributions can be made for 31 years, with the plan remaining open for a maximum of 35 years.

• Individual RESP plans are used for a singular beneficiary who may or may not be related to the subscriber and who will be the only individual using the monies saved for post-secondary education.

• Family RESP plans allow for including multiple beneficiaries who are closely related to the subscriber (such as children, grandchildren). The beneficiaries are able to share (if required in unequal proportions) the grants received and growth earned.

• Contributions are not tax deductible, however the grant and growth when withdrawn are taxed in the hands of the student beneficiary for educational expenses. Since students are typically in a very low tax bracket – they’ll likely pay little or no tax.

• Under the basic Canadian Education Savings Grant (CESG) the government pays 20% on the first $2,500 saved per beneficiary each year (up to $500 annually, with a lifetime limit of $7,200 up to age 18). Any unused CESG entitlement can be carried forward.

• Qualifying families with modest income may also be eligible for The Canada Learning Bond (CLB) of $500.00 and subsequent installments of $100.00 annually up to age 15 as long as the family remains within the income threshold. This provides additional grant of up to $2,000 per child born after December 31, 2003.

If your child decides not to pursue post-secondary education, there may be other options to consider rather than closing the plan such as leaving the account open in case they change their mind or transferring to your RRSP or to an RDSP. (subject to available contribution room)

Understanding RESPs is easier when you have access to the right information and advice from our investment professionals. FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. To learn more about how RESPs can help you and your family grow education savings faster with tax smart investment strategies, visit FirstOntarioInvestments.com or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor. Start growing your wealth today – your way.

Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc.