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RESPs Advantages

There are a number of advantages of Registered Education Savings Plan (RESP) that make them a logical choice for parents.

While you may also save for your kids’ education outside of RESP accounts, it is important to keep in mind that savings in such accounts do not enjoy the benefits of government grants and tax-sheltered growth.

What is a RESP?

A RESP is a government-sponsored plan that allows parents to contribute each year in an account that appreciates tax free for up to 21 years. Contributions are not tax deductible, but investment income is not subject to income tax.

When the child starts post-secondary education, the Registered Education Savings Plan provides income to pay for tuition and related expenses, taxable at the rate applicable to the child’s income, not the contributor. If the child does not pursue a post-secondary education, accumulated earnings can be transferred to the contributor’s RRSP, if there is sufficient contribution room available.

RESP Advantages:

  1. Investment strategy can incorporate either capital appreciation or more conservative GICs etc.
  2. Anyone can contribute.
  3. No taxation matters until withdrawn.
  4. Can change beneficiary to blood or adopted relation.