When it comes to your child’s career, one of the most important things to consider is the quality of education they receive. But while good education is indeed important, you cannot undermine the high costs associated with it either.
As your kids grow up, their educational costs increase and by the time they reach university, their tuition fees turn out to be a hefty sum.
So what is the best way to save for your child’s university tuition fees, without compromising on the quality of education they receive?
A Registered Educational Savings Plan, or RESP, can be your answer. An RESP is designed for helping you with your kids’ post-secondary/university educational costs. While being tax-sheltered, these accounts are also eligible for the money from the government grants. In addition to this, you can store a large number of investments like GICs or individual stocks here. But before you get started with RESP, there are certain rules to take note of.
RESP comes with a withdrawal limit
Very often, when people opt for an RESP plan, they immediately assume that they will be able to withdraw as much money as they want from it. While this is definitely viable for original contributions, the same does not apply for government grants or the funds received from investment income.
If you’re willing to withdraw the government grants or income from investment, then the first withdrawal will come with a cap of $5000. Again, this will only hold true for those individuals who have enrolled their kids for a full-time post-secondary educational program.
In case you’re willing to withdraw more funds, you will have to wait for around thirteen weeks to do so. Also, if your child has a gap year extending to more than twelve months, you will once again be subjected to the $5000 cap while taking your subsequent withdrawal.
There are also situations when the tuition fee and the additional expenses end up being higher than the average amount that you can withdraw. In this situation, the Employment and Social Development organization of your country might allow the withdrawal. But the final decision might vary from one student to another.
In this regard, also keep in mind that no individual beneficiary allowed to get more than $7200 in terms of grant money. When reading online reviews of Knowledge First Financial, one of Canada’s largest RESP providers, we learn that RESPs are also eligible for savings incentives like the Canada Education Savings Grant (CESG).
Money from RESP can be transferred
If you experience a situation where your first child drops out or doesn’t use the entire money allocated for them, you can always transfer this amount to their sibling. Considering the fact that RESPs come with a limit of 36 years, the younger child will have ample time for using the money. But in case you have a single child, you will have to close the account irrespective of the amount left.
Here, you might also be penalized on the grounds of ‘non- contribution’ if you don’t get the amount transferred to a legal RRSP.
Check if your child’s post-secondary institution qualifies for RESP
If you’re willing to opt for RESP to secure your child’s career, it is extremely important to check whether your child’s institution is eligible for RESP.
While this is definitely not the case for all leading institutions, some universities that specialize in a particular trade or on arts are not eligible for the program. In case your child’s school does not qualify, you can always withdraw the initial contributions without any tax deductions as the contributions were completely made from after-tax dollars.
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