Registered Education Savings Plans and Their Value
Almost every parent starts thinking about the education requirements for their little ones well before the little one is ready for school. Most often this also comes with concerns as to how they will be able to afford it. The first thought may be to simply open a separate bank account such as a savings account and put a set amount of money away every week. Over the years this will accumulate with some interest and hopefully be enough to cover the educational needs.
All too often this becomes wishful thinking because it becomes a tendency to dip into these funds if money is needed for the family or a financial emergency arises. With a RESP a formal contract is drawn up between the individual who is going to supply the funds which is the subscriber and an organization who is going to handle and hold the funds which is the promoter. The subscriber will indicate who the beneficiary of these funds is (which is the future student) and the promoter takes on the task of making the educational payments when the time arrives.
There are tax rules that govern this type of educational savings. Once the contract has been negotiated it is registered with the CRA as a RESP. Limits will be set over the course of the life of the contract as to what the amount of contributions can be.
This really is a great way to put money aside for the education of the children and not be tempted to dip into it. There is also an ever greater value which lies in taking advantage of the Canada Education Savings Grant.
This is an incentive that is offered by Employment and Social Development Canada. Those who are named as beneficiary on a RESP may be able to receive grant amounts up until the end of the year they turn 17.
This grant is money that the government will contribute to the RESP and the grant has two parts to it. The first part is the government will contribute 20% on the first $2,500 saved in the RESP each year. Then the second part is dependent on the net family income but could generate an extra 10 – 20% on each dollar contribution on the first $500. for each year. There are special rules regarding children between the ages of 15 to 17 for this government grant, and specific criteria that has to be met in regards to the grant in general.
If you have children and want to provide some future security for their education it would be worth discussing the value of a RESP and the grant as well as your tax implications regarding this with your Toronto accountant.