Commonly abbreviated as “RESP,” a Registered Education Savings Plan is the safest and most accessible investment vehicle for Canadian parents that are preparing to send their children to a reputable post-secondary educational institution, such as a university or trade school. However, many of the benefits and windfalls associated with RESPs are still relatively unknown, so feel free to read along for an in-depth look at the top five advantages of establishing a Heritage RESP.
1. You Gain Instant Access to the Canadian Education Savings Grant
The Canadian Education Savings Grant (CESG) and the RESP work hand in hand to help you make substantial, expedited progress with regard to your savings plan. The CESG program involves contributions to your RESP from the government, and the total allocation amount is based on your personal inputs, as well as your household’s overall income.
Since the introduction of the CESG roughly 20 years ago, nearly 50% of Canadian children have received payments from the program, and the cumulative value of federal and provincial contributions recently surpassed $8 billion.
2. Your RESP Also Functions as a Tax Shelter
A RESP enables you to diminish your taxable income and bestow your child with a lucrative nest egg during his or her post-secondary education:
● The money that you place in your RESP is taxed at the standard rate according to your income level, but the individual that withdraws the money (your child) will be taxed at his or her unique rate.
● This is particularly helpful when considering the fact that students have a very low tax rate in relation to their parents, which effectively protects the RESP from undue surcharges upon withdrawal.
● This concept also applies to the CESG contributions and the interest that accumulates in the account over time.
As such, a Registered Education Savings Plan is extremely valuable form a taxation perspective, both for the parents and the student.
3. You Can Establish Educational Assistance Payments (EAP)
Once the child enrols in a qualified post-secondary institution, you can create a serviceable EAP schedule that disburses money to the student in accordance with his or her needs.
The EAPs will be withdrawn from the Canadian Education Savings Grant portion of the account as well as the accrued interest, which enables the student to pay for study materials, transportation, tuition, and other compulsory expenditures.
Simply stated, the EAPs will serve as a fundamental income stream for the student during his or her educational career.
4. RESPs are Renowned for Their Stable Appreciation Rates
If you maintain a diligent approach, capitalize on CESG contributions, and prepare an adequate EAP plan, you can expect a return of 30% or more depending on how early you institute the RESP.
The investment returns tend to be higher for low-income families, but every household stands to gain a considerable yield with a modernized RESP. The earlier you begin, the better off you’ll be.
5. The Enrolment Process is Straightforward and Intuitive
All you need to establish a Heritage RESP is a Social Insurance Number and a few basic articles of paperwork, such as a birth certificate. You don’t have to worry about any upfront fees or surcharges either, so it makes a lot of sense to get the ball rolling as soon as possible.
Furthermore, Canadian RESP providers are very accommodating and trustworthy, which allows you to have complete confidence that your hard-earned money will be in the best of hands.