An RESP gives your child the gift of education
One of the greatest hopes that parents have for their children is that they will receive a good education. That could include college, university, CEGEP (in Quebec), apprenticeship or trade school.
While there are many benefits of post-secondary education, including more employment opportunities and higher salaries, the associated costs can be high — as much as $100,000 by the year 2019 for a four-year undergraduate program away from home, according to Human Resources and Social Development Canada.
An RBC Registered Education Savings Plan (RESP) can help you save the money you need to provide a good education for your child.
What is an RESP?
RESPs allow your money to grow tax-free until the beneficiary of the plan — your child, a relative or anyone else you wish to help — is ready to attend a post-secondary school. Note, however, that contributions to the plan can only be made until the beneficiary reaches 21 years of age. Also, the plan must be closed on the 25th anniversary of its opening.
A requirement to start an RESP is that both you and the beneficiary of the plan (the child) must be Canadian residents and have Social Insurance Numbers (SIN).
There are a number of financial benefits to using an RESP to save.
- An RESP is a tax-sheltered investment. This means the income that you earn on these funds (through interest, dividends or capital gains) can generally accumulate without being taxed. When you direct a payment to the child from the RESP, only the investment income is taxed. Many students will pay little or no income tax on RESP withdrawals because those students don’t earn enough employment income while they’re in school to incur much tax.
- Another key advantage to setting up an RESP is the Canada Education Savings Grant (CESG) program. The Federal Government contributes 20% to 40% (depending on your family income) on the first $2,500 in annual contributions you make to an RESP, up to a lifetime maximum of $7,200 per child.
- Depending on your family income, you may also be eligible to receive the Canada Learning Bond (CLB), if your child was born after December 31, 2003 and you receive the National Child Benefit (NCB). Under the CLB program, the Government of Canada will deposit $500 in your child’s RESP in the first year, and $100 for each following year that your family qualifies for the NCB.
RBC Offers Many Types of RESP Investments
There is no annual limit on how much you can deposit once you open an RESP. However, there is a lifetime contribution limit of $50,000 per beneficiary.
You do not receive a tax deduction for the money you deposit to an RESP account, but the money that accumulates from interest or earnings is not taxed until it is withdrawn.
An RESP can hold many types of different savings and investments vehicles. RBC offers a wide range of options for your RESP, including:
Savings deposits. Similar to a regular savings account, the interest rate increases as the amount of money in your RESP savings deposit increases. This may be a good option to get started, until you decide how to better allocate the funds in the RESP.
RBC mutual funds. The RBC family of mutual funds can accommodate a wide variety of investment objectives and styles. You also benefit from a diversified portfolio and the expertise of professional money managers. RBC offers a comprehensive line-up of mutual funds that may be held within an RESP.
Guaranteed Investment Certificates (GICs). These investments offer security for your initial investment, plus a pre-determined interest rate. RBC offers two main types of GICs: guaranteed-return GICs, which offer a guaranteed rate of return; and market-linked GICs, which offer the growth potential of the stock market while guaranteeing your principal.
RBC RESP-Matic. Setting aside smaller amounts on a regular basis can make it easier to save. RBC RESP-Matic allows you to make regular, automatic payments to an RESP from your chequing or savings account. You can also stop, restart or change your contribution schedule at any time with one phone call.
Whichever form of investment that you choose, there is no charge to start an RESP with RBC , and no administration fees and no commissions on RBC Funds.
How to Start an RBC RESP
To take full advantage of the growth potential of an RESP, it’s important to open an account early. You can get started with a lump-sum payment, or you can begin RESP-Matic payments for as little as $25 per month.
To open an RBC RESP, or to learn more about the options that are available to you, please visit a personal banker at your local branch, or call 1-800 ROYAL® 1-1 (1-800-769-2511) to speak to an investment specialist.
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