Saving for your child’s future is of the utmost importance. The Canadian government has decided to help people save for the future by creating the Registered Heritage Education Savings Plan (Heritage RESP). The government will contribute to this plan each year and it is just smart to take advantage of it. Take a look at these five important reasons to sign up for the plan if you are currently on the fence.
1. You Essentially Get Free Money
If you sign up for this savings plan, then the Canadian government is going to be putting money into the account for your child each year. Every year, the Canadian government is going to add to the account using the Canada Education Savings Grant. If you do not have one of these plans for your child, then you are simply missing out on this opportunity for free money. This is money that will certainly come in handy later for your child so it is sensible to make the account as soon as possible.
2. You Don’t Pay Taxes on These Earnings
If you are worried about signing up due to having to pay taxes, you should lay those fears to rest. This account is going to be allowed to grow tax-free. You do not pay any taxes on your investment earnings with this account. Savings will be able to grow very quickly in this account and it is the most practical way to save for your child’s post-secondary education in Canada.
3. The Child Pays Taxes on Payments Later in Life
Your child will be paying taxes on payments received from the RESP account later on in life. When your child has started his or her post-secondary education, he or she can begin taking payments, which are known as educational assistance payments, from the account. The money being used for these payments is the earnings from the Registered Heritage Education Savings Plan account (RESP account) as well as the government grant money. Your child will pay taxes on these payments but the tax will likely be very low as students usually do not have high-paying jobs.
It should also be noted that contributions will be able to be withdrawn by you (the parent) or the student. These withdrawals are completely tax-free. The Canadian government has set this up to be as easy as it can be for families. It is designed to be a helpful tool that will give more children access to post-secondary educational opportunities.
4. Your Family and Friends Can Put Money in the Account
This account is also convenient due to the fact that friends and family can contribute to it. If your family would like to make a contribution to your child’s education fund for special occasions, then they will be able to do so. This helps the account to grow even more quickly and should make the transition into post-secondary education that much smoother for your child.
5. RESP Accounts Can Stay Open for a Long Time
These heritage RESP accounts can even stay open for a very long time. Not everyone wants to start his or her college days right after finishing high school. If your child wants to wait a few years to go to college, that will be perfectly fine in regards to this RESP account. The account will stay open for up to 36 years so your child will have plenty of time to start making use of this money for post-secondary educational expenses.
There are some exceptions to the rule so it is a good idea to look into the specifics of how long your account can stay active and open. Regardless, you should know that your child will have time to figure things out for himself or herself. It does not have to be used right away.