A Registered Education Savings Plan (RESP) is a tax-advantaged, government-assisted program that helps people save for their children’s post-secondary education.
What this means:
If you have children, or are expecting your first, consider setting up an RESP. Money that gets invested in the plan can grow on a tax-deferred basis. Dollars saved in an RESP are meant to be directed toward post-secondary educational expenses, such as tuition, books, and transportation. There’s no annual contribution limit, but there is a lifetime contribution limit of $50,000 per plan beneficiary. The best part is the federal government can match a portion of your contributions through the Canada Education Savings Grant. They’ll give a qualifying beneficiary a grant of 20% on the first $2,500 contributed annually up to an annual maximum grant of $500 and to a lifetime maximum of $7,200. Unlike a Registered Retirement Savings Plan (RRSP), there’s no up-front tax deduction on the money you contribute. When it comes time to withdraw, your contributions are not taxed, but the grants and income earned in the RESP are taxed in the hands of the student. Since most students have low income, the tax impact should be negligible. An RESP may hold a wide variety of types of investment.