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As we navigate through the current environment and make the necessary adjustments to our shorter-term plans, we continue to have important long-term goals we want to achieve. If one of those goals is to provide for your child's education, certain choices you make today can greatly improve your future outcomes.
While many Canadians have heard about Registered Education Savings Plans (RESPs), many are still not clear on the ins and outs of how to fund future education costs. Some well-intentioned families are missing out on key opportunities and potentially leaving money on the table or even creating future undesirable outcomes that could have been avoided with careful planning. Thinking through the options with your Edward Jones advisor and acting early are the key steps to successful planning.
A Registered Education Savings Plan is one of the most effective ways to save for a child's education expenses. Subscribers (typically parents) make contributions to the RESP for the benefit of one or more beneficiaries of the plan. Contributions are generally eligible for a federal government match, called the Canada Education Savings Grant (CESG), of 20% (and in some cases more), up to an annual maximum of $500 and lifetime maximum of $7,200 per child. The lifetime maximum contribution limit is $50,000, and the annual contribution required to maximize the CESGs is $2500. Additionally, the Canada Learning Bond (CLB) may be available for children in lower-income families. The CLB is not a "match" amount and there is no minimum contribution required. Over the life of the RESP, the contributions, CESGs, CLBs, and income grow tax-free within the plan.
When the funds are eventually withdrawn, the contributions come out tax-free. As long as the beneficiary attends a qualifying post-secondary institution, the income and government amounts will be included in his or her income for the year. As students are typically in a low or zero tax bracket, the expectation is that they would pay very little tax, if any.