Life goes by quickly. Just look at how fast kids grow up; seemingly overnight, they’re going from crawling to walking, or from the first day of school to taking their driving test.
One big step in a young person’s life is embarking on their post-secondary education journey. As a parent, you want to do everything you can to ensure that when your child reaches that stage they have the freedom to follow the path they love. By investing in a Registered Education Savings Plan (RESP), you can help ensure that choice is available to them.
There are many reasons to invest in a RESP, but one great advantage is how tax-friendly it is.
Here are three tax benefits you and your child will receive through your RESP.
As you contribute to your RESP, you pay no taxes on your earnings or any government contributions, as long as the funds remain in the plan. All earnings on investments in an RESP are tax-sheltered until withdrawn.
After your child chooses their path and enrolls in their post-secondary education, they can receive Education Assistance Payments (EAPs) from your RESP. This is the money they can use for tuition, books, food and housing, to ensure they experience all that post-secondary education has to offer. Although these payments are considered income and are taxable, they are taxable in your child’s hands. As a student, your child will likely have little to no other income, meaning that very little, if any, tax will be paid on their EAP income.
Sometimes life doesn’t turn out the way you expect. If for some reason your child chooses not to pursue post-secondary education, you can withdraw your contributions from your RESP; just keep in mind that you’ll be taxed on any earnings (and you will have to return any government grant money). But if you move your RESP earnings over to your RRSP or RDSP, they will be transferred tax-free. Just keep in mind that there must be contribution room in the RRSP or RDSP, and conditions apply.
These great tax benefits are in place so parents like you can empower your child to pursue their dreams—and to help reduce the financial burden that often comes with post-secondary education.
The information above is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax advisor or financial planner.