five THINGS

THAT MAKE RESPS AN AWESOME IDEA

How better to prepare our children for a successful future than to ensure they have some financial support for post-secondary education Here are five things that make a Registered Education Savings Plan an excellent investment in that future

1 An education is, and will be, expensive.

A four-year university degree can cost upward of $60,000 including tuition, room and board, books and spending money For children born in 2013, costs could reach $140,000 by the time they attend a post-secondary institution, BMO estimates

2 You get free money.

You can receive up to $500 a year in federal government grants when you contribute the $2,500 annual maximum (the federal government matches 20% of the first $2,500 contributed each year for eligible children) to a lifetime limit of $7,200 “I don’t think you can really expand upon the fabulousness of free money,” says Sandi Martin, a fee-only financial planner

3 If you need a boost, the government will give you a jump start.

The Canada Learning Bond provides an extra $2,000 per child to help families that earned less than $43,561 in 2013 For families receiving the National Child Benefit, they don’t even have to make any contributions into the RESP The government will give you $500 for your child at birth and then $100 each year until your child turns 15 “It can work for people who don’t have any money to save for an RESP,” Ms Martin says Your children could be eligible for more grant money through a provincial program, she adds

4 Your money grows tax-free.

Your investment earnings in your RESP (capital gains, dividends and interest) grow tax-free until withdrawn “Eventually it will be taxed but it will be taxed in the student’s hands,” she says We assume that your child will be in low- or zero-tax bracket and little, if any, tax will be paid when the funds are withdrawn

5 If your kid decides against education, you still have options.

If your child does not pursue more schooling, the money isn’t lost You have 35 years after a plan is opened for your first child before an RESP has to be closed, so you can wait him out or you can transfer the RESP to another child If you collapse the plan without using it for a child, you get all of your contributions back but you will have to pay back any unused grant money to the government You can withdraw the earnings but they count as income in the year they are taken out and subject to a 20% withholding tax You can also transfer up to $50,000 of earnings to a personal or spousal RRSP if you have the contribution room