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  • Jackie Hivert, Libro Owner - Beechwood

    Education Savings 101

    September 16, 2013

    With the ever-increasing cost of education, it’s never too early to start saving for your children’s future. The easiest way to save is through a Registered Education Savings Plan (RESP).

    What is an RESP?

    A Registered Education Savings Plan (or RESP) is a special type of savings plan designed to help you save for your children’s post-secondary education.  This type of investment combines tax deferred investment growth with direct government assistance.

    Benefits of an RESP

    • The government helps you save! The government will give you 20 per cent of the first $2,500 you save each year, up to a maximum of $500 a year, through the Canadian Education Savings Grants (CESG).  Depending on your household income, you may also be eligible for an additional 10 to 20 per cent in grants.
    • Flexibility. You are in control of how much and when funds should be withdrawn during your child’s post-secondary education. The withdrawals can be used for a variety of education-related costs including tuition, books and living expenses.
    • Tax-sheltered growth and savings. While the money you contribute isn’t tax deductible, all of the interest growth your RESP incurs is tax-sheltered until the time of withdrawal. At that point the growth is taxed at the student’s rate, which will likely be much lower than if it were taxed at the rate of the contributor.

    Tips to maximize your investment

    • You can contribute any amount to an RESP keeping in mind there is a lifetime contribution limit of $50,000 per child. Setting up a Pre-authorized Contribution (PAC) plan is the best way to ensure your investment grows over time.  A PAC automatically transfers a specified amount at set times throughout the year (usually monthly), which allows you to take advantage of the basic principle of compound growth: small amounts invested over a longer period of time will result in more growth over the long term.
    • Get your kids interested in saving by suggesting (or insisting) they put away a portion of the money they receive as gifts or through babysitting jobs and paper routes. Every little bit helps, and your children will also gain valuable savings skills!
    • As with any investment, time is on your side.  The earlier you start saving in an RESP, the more your money will work for you over the long-term.

    Cashing in your RESP

    • Once the beneficiary starts at a qualified post-secondary school, money can be withdrawn with proof of enrollment.
    • The portion that you’ve contributed can be withdrawn in part or in full (remember the principle money is non-taxable but the growth is taxable).  
    • The portion that is made up of government grants must go to the beneficiary and is fully taxable. Also, during the first 13 consecutive weeks of enrollment, there is a withdrawal limit of $5,000 on this portion. After that, the limit does not apply as long as the student has been enrolled in a full-time program within the previous 12 months.  Different rules apply for part-time students.

    RESP rules can be complex so a good first step is to meet with your Libro Coach who can help you sort through the details and work with you to determine a contribution and withdrawal strategy that works best for you and your family.

    Libro Money School: RESPs
    With the rising cost of raising a family, it's important to start planning early when it comes to saving for your kids' education

    Money School video library

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