The Canadian government promotes saving for post-secondary education by offering a savings scheme – Registered Education Savings Plan (RESP). Donations to a RESP allow investors to accumulate capital gains free from federal income tax. For kids under 18, the government puts in a specific amount to their savings programs. Contributions to a RESP are not tax deductible for the contributor. Earnings from the RESP are taxable, while withdrawals from the account are not. However, students can withdraw the funds tax-free because they have very low or no taxable income.
YOU SHOULD CONSIDER REGISTERED EDUCATION SAVINGS PLAN
CESG would match 20% to 40% of your annual donations, allowing your savings to grow tax-free. The federal government matches a portion of your RESP contributions, up to an annual cap and a lifetime maximum. An advisor can help you determine which investment option is appropriate for your unique needs and goals. Investing options that qualify include managed portfolios and mutual funds, as well as fixed-income securities & individual depository receipts.
A RESP is a tax-deferred savings account that can help you build your nest egg without incurring tax penalties. Since the investor will have already paid taxes on the amount invested in a RESP if the beneficiary does not attend college, the investor will receive a full refund of their investment if the beneficiary does not enroll. However, capital gains and interest collected will be subject to taxation upon distribution. A Registered Student Savings Plan has three primary aspects – subscriber, promoter, and beneficiary.
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