What Should I Know About RESPs?
What is an RESP, why would you need it and who benefits the most from having one? RESPs stand for Registered Education Savings Plan. Like RRSPs, RESPs provide tax sheltered investing and savings for a child’s education. Anyone can contribute to an RESP, which makes it an ideal way for family members to support a child without resorting to mountains of toys.
More important than its tax sheltered structure, RESP contributions are eligible for a government grant worth 20% of whatever is contributed in a calendar year, up to a maximum of $2500. This means that for every $1 you put towards your child’s education savings plan, you get an additional 20¢. The grant is available to any child so long as they haven’t over contributed and are under the age of 17.
There is a lifetime contribution limit per child for RESPs, which is $50,000. While that may seem like a lot to put aside, it is important that you get RESPs started early in a child’s life, since they get both the benefit of the grants and compound interest, and both will be maximized the longer a timeline you have to invest.
There are lots of ins and outs to RESPs, including how children qualify to withdraw money for their education, what happens if they don’t use their RESPs and what types of programs will be considered to maximize their benefit. But these details are secondary to the fact that in a world of rising tuition costs and burdensome student loans, maximizing RESP contributions for children can significantly mitigate the costs of going to university and allow graduates greater freedom to pursue their goals without a large student debt following them around.