A back-to-school lesson on RESPs
With the new school year underway, it’s time to take a good look at your child’s RESP, or if you haven’t opened one yet, it’s never too late to start investing in your child or grandchild’s future.
While the RESP account may seem complicated, the benefits are rewarding and the withdrawal rules are straight forward. And remember, we’re always here to help.
If you don’t have a RESP for your child or grandchild yet, here are a few benefits to consider:
Funds grow tax-free – and the earlier you contribute, the more these funds have the potential for compound, tax-sheltered growth.
Incentives to save – through the Canada Education Savings Grant, the government can add up to $7,200 in contributions over the lifetime of the plan. The Canada Learning Bond also provides additional grants to low-income families.
RESPs are also flexible — so you can invest funds in a range of products, like mutual funds, ETFs, stocks and bonds. (Our team can help you decide on the optimal mix of investments to maximize the potential of your child’s RESP.)
What if my child doesn’t attend post-secondary school? If you have a family plan, you can transfer the funds to another child, or, unused contributions can be returned tax-free to the contributor (with certain stipulations). We would be happy to discuss your options to ensure your savings are withdrawn in a tax-efficient manner.
If you already have a RESP and would like to start withdrawing funds, here are a few things to keep in mind:
First, before you make a withdrawal, you’ll need Proof of Enrollment documentation, on the educational institution’s letterhead, containing:
· The institution’s name and complete address (including postal code)
· Date of issue (must be currently dated)
· Student’s name (and student number, if available)
· Confirmation that the student is currently enrolled in the program at the educational institution
· Enrollment status (full-time or part-time)
Next, remember that when you make a withdrawal from your child’s RESP, you’ll have two pools of funds to withdraw from — Post-Secondary Education Payments (PSE) and/or Education Assistance Payments (EAP):
· The PSE pool consists of the contributions you made to the RESP; these funds can be withdrawn tax-free in any amount at any time.
· The EAP pool is made up of investment income and capital gains earned inside the RESP, as well as government grants/bonds. Withdrawn amounts are taxed at the student’s marginal rate, but since most students have negligible income, the tax liability is likely to be very low. There’s a maximum withdrawal amount for EAP funds during the first 13weeks of school — $5,000 ($2,500 for part-time students) — with no limit after that. If more funds are needed, you can always dip into the PSE.
If you have any questions or need assistance, please reach out to us anytime.
P.S. Can’t wait to learn more? You can also check out this helpful article about RESPs.
This information does not necessarily reflect the opinion of iA Private Wealth. The information contained in this email comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
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