What is an RESP?
RESPs AND THE POWER OF TAX-DEFERRED INCOME GROWTH
RESP - Registered Education Savings Plan (registered under the Income Tax Act of Canada).The first thing to understand about education savings is the concept of tax-deferred income growth.
An RESP is a government-registered savings vehicle for education. Just like with an RRSP, any income earned in an RESP is tax exempt until it is withdrawn – allowing your money to stay in the plan and compound over time.
Why Start Now?
The power of compound growth means that the earlier you start to save, the more money you’ll end up with for your child’s education. Look at the difference a few years can make and see how much more you can save when you combine tax-deferred income with an early start.
Costs of Post-Secondary Education
As it becomes more and more difficult for young people to afford a college or university education, it also becomes more and more important they get one. Currently, two-thirds of all new jobs require a post-secondary education.*
Other Benefits
In addition to the incredible power of tax-deferred income growth, RESPs offer a host of other tax advantages:
- When your child receives funds from the plan, if there is any tax to be paid at all by the student, it is only on the income earned – not on the principal;
- The earnings are paid to the student to help fund their post-secondary education. Since most students have little or no income, these payments usually attract little tax, if any; and
- At plan maturity we return the principal contribution (less plan fees) to the maturity refund recipient - usually the parents. Most parents use this money to help pay for their child's first year expenses.
