Article provided by iA Clarington Investments
If you're beginning to think about either starting a family or if you have young children, saving for their education may not seem like a pressing matter...however, there are countless benefits in beginning to invest for your children's education and the sooner you start, the better.
The number one way to do this is through an RESP (Registered Education Savings Plan). RESPs are a great way to save for your children’s post-secondary studies. They offer a variety of benefits – including government grants and tax deferral – that can help you achieve your saving goals more quickly.
What happens when RESP money is withdrawn?
Once your child is registered at an approved post- secondary institution, you can start making withdrawals from your RESP account. The contribution portion of the RESP is tax free and there is no restriction on how these funds can be used. The CESG and accumulated earnings on all contributions are paid to the beneficiary as Educational Assistance Payments (EAPs). These funds must be used for education expenses and are considered taxable income for the beneficiary. But since your child is likely in a low tax bracket, any tax should be minimal.
What happens to the RESP if my child doesn’t enroll in a post-secondary program?
If your child chooses not to pursue post-secondary education, then generally:
• Your contributions are returned to you tax free
• Investment earnings are returned, but you will have to pay tax on them For individual RESPs, the CESG must be repaid unless there is another eligible beneficiary. This is the advantage of family RESPs: the grant money can be transferred to other students in the plan as long as no one receives CESG money exceeding $7,200.
Note that an RESP must be closed by December 31st of the 35th year the plan has been active.
To learn more about RESPs and if they're right for you contact us today!
This document was prepared by the Investment Products & Platforms Team. The opinions expressed in this document do not necessarily reflect the opinions of iA Private Wealth Inc. The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Contents copyright by the publishers. The information contained herein may not apply to all types of investors.
Comments