What are the advantages of RESPs over other account types?

September 8, 2017 ATB Financial

What are the advantages of RESPs over other account types?

Why choose an RESP when there are so many other options to save and invest? Well, there are a few major reasons why RESPs make a lot of sense and the greatest benefits have to do with government grants and tax benefits. 
 

Government grants

Government grants are basically money that the government contributes to your child’s RESP. The government will contribute 20 cents on every dollar that you invest up to a yearly maximum of $500, and a lifetime maximum of $7200. That’s a significant addition that you can only get through an RESP. There is also a pretty great rule that allows you to catch up on the grant amounts until your child turns 17. So if you’re not able to contribute the maximum amount while they’re babies, don’t worry, you’ve got time to catch up. Although, there are limits to the amount that you can catch up in a year.

Some families will also qualify for the Canada Learning bond, which can pay up to an additional $2000 for each child. Lower income families may also qualify for additional government grants and bonds.

Tax benefits

The money that you put into an RESP grows tax free​ until it’s withdrawn. Once your child is off to pursue post secondary education and it’s time to make withdrawals, they are only taxed on the accumulated earnings and the grants and bonds. The best part is that since students are typically in a very low tax bracket, they are often taxed very lightly or not at all.

 

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