Why You Need To Invest In An RESP For Your Child
In Canada, many new parents have not been preparing adequately for their child’s educational future.
A study done by Maclean’s magazine found that nearly two-thirds of post-secondary students do not have a Registered Education Savings Plan (RESP) to draw on for their expenses.
This puts pressure not only on the student but on the parents as well. The report notes that parents are one of the primary contributors to a student’s education.
Setting aside money while your child is growing up can ease the financial burden when they hit the college years. Because the average cost of a college education in Canada is $19,498.75, according to Macleans, wise parents know they need to save early.
Putting money in
More than just a savings program, RESPs are investments that allow parents or guardians to earn interest as well as government grants. However, there are many different choices when it comes to how to invest the money.
For those looking to have the most control over the timing of contributions, a self-initiated plan may fit best. While those looking to earn the most money quickly should opt for a group plan.
On top of individual RESPs, there are family accounts, ideal for those with more than one child.
Taking money out
Regardless of the plan, you choose there are also some important considerations for when the child begins to withdraw the money. One of the biggest questions that parents and students have when it comes to using the RESP is taxes.
When the child begins to withdraw the money, it is important to note that the interest earned and the grant money will need to be claimed on the student’s tax return, one financial publication states. The good news is that the contribution amount does not need to be claimed.
However, most students fall into a low tax bracket so it is not likely they will be looking at paying taxes. Some experts advise some smart planning in this area by taking out the money when the student’s other income is low.
Another little-known fact about RESPs is that it is not solely for tuition and books, but rather the funds can be used to cover any expenses the child has while attending post-secondary school.
The cost of college for Canadian students is one of the biggest financial investments they will make. Yet, it can pay off and set them on a course for a bright future.
Because parents are one of the biggest contributors to their child’s education, it makes sense to start saving early to ease the burden during the post-secondary years.