Parents make many decisions to help prepare their children for success in the future. Although it can be difficult to keep track of day to day tasks when your child is young, it is more difficult to manage the necessary steps that you need to take to prepare a student properly for the years ahead.
Whether you are a parent, a grandparent, or a family friend, there are steps you can take to look out for a child. A Registered Education Savings Plan (RESP) is a smart savings tool that helps you save for a child's post-secondary education. Seeing as the cost of tuition is constantly rising, preparing in advance is necessary to avoid extraordinary student debt in the future.
In this article, we will talk about the seven reasons to invest in an RESP.
1: Tax-Deferred Growth
RESPs allow your money to grow tax free in the plan. When the money is withdrawn, it will be issued through your child's name. Your child pays taxes on the money during withdrawal, but since he or she will likely be making little to no income, taxes will be minimal.
2: Government Grants
With traditional retirement and tax free saving plans, individuals do not have the ability to access government grants. The Government offers incentives to save towards post-secondary education in the form of federal and (in some cases) provincial grants.
With additional incentives like the Canada Education Savings Grant (CESG), the government matches 20% of your contributions, up to $500 a year, and to a lifetime maximum of $7,200 per child. Lower income families could also benefit from the Canada Learning Bond, based on their income and the number of children. There are also provincial grants provided in British Columbia, Quebec and Saskatchewan.
When you open an RESP with a registered provider, you won't have to worry about applying for grants. They will directly apply for the relevant government grants you are eligible for, on your behalf.
3: Principal Protection
When you invest with a provider like CST Consultants Inc., you have guaranteed principal protection. The focus with a registered plan is on long-term value by investing to protect your principal and earning positive returns.
4:Flexibility
You may be wondering what will happen if your child does not enroll in post-secondary education. There are many options to move forward, including:
Transferring money to a different child
Rolling money into your RRSP or RDSP
Withdrawing the income
Having options provides people with flexibility in case plans change. As a parent or guardian, you often have to be flexible in order to take best care of your child. If you need to skip a contribution or make changes to it, there are options available to help you to continue saving for your child's post-secondary education.
5: Study Options
One of the most amazing qualities of this savings tool is the opportunity it provides for extensive customization. Whether your child wants to attend a 13-week program in Canada, abroad or community college, these funds can be used by any organization accredited by the Income Tax Act.
Check out this list of designated educational institutions to understand the extensive number of institutions in Canada where RESPs can be used.
6: Empowerment of Children
Imagine having the freedom to inspire your child to do whatever they wanted when they grow up. Having the opportunity to get further education opens the doors to thousands of career opportunities in the future. When students go into post-secondary school and are anticipating an extraordinary amount of student debt, the likelihood that they finish their educational program decreases.
7: Accessible for All
There are many affordable RESP options available on the market - some even start as low as $10 per month. This flexibility allows any parent or guardian to begin putting away funding for their children's education. Since the bar is low, you have the opportunity to be as flexible as you want with your investments. If you are paid in bonuses, you can invest large sums one month and small funds the following month. This accessibility allows people from all economic statuses to take steps towards a financially healthy future.
Summary
Our economic, political, and physical environments are constantly changing. With so many uncertainties in the future, it is important to put consistent measures in place so that you can be prepared for anything that comes your way.
Although you do not know everything that may come your way, an RESP can empower your child by reducing the amount of student debt they incur in the future and set a bright path ahead for them.
