A RESP is an account you use to save to pay for college or university. Your parents can open an account for you at any stage in your life. There will be more money available in a RESP for your education if your parents start investing earlier in your life. You can do the same for your children when your older.
Main Benefit
The main benefit of a RESP is that the government provides a 20 percent return yearly on the money invested each year up to $2,500 dollars. Meaning, when you put $2,500 into the account, the government will give you $500 which is 20% of $2,500. You could have further gains or losses depending on what you invested in within your RESP. Click the link RESP for more information on RESPs from the government of Canada. I decided to invest in a mutual fund with lower volatility so it likely won’t have high returns. However, it will be a safer investment when the stock market is having a down year. There are many different RESP accounts you can put your money in that offer various options/incentives and types of returns.
Withdrawing Funds
Make sure that RESP funds can be easily accessed when you need the money. When withdrawing funds talk to your financial advisor about withdrawing the taxable and nontaxable portion of funds. Make sure you develop a plan that allows you to withdraw them strategically. Withdraw taxable funds to apply to a student’s income when they are working less. A student’s low income allows more room to add taxable funds. For example, if a student’s income is $4,000 a year, you can add about $10,000 of RESP taxable funds. The government does not tax income up to approx. $14,000 dollars a year. Therefore, keeping your income below $14,000 prevents you from having to pay taxes. When the taxable funds withdrawn cause your income to rise over $14,000 dollars, you will pay taxes.
Make sure your parents and you talk to a financial advisor about different RESP plans that are available and find one that will allow you to save for college or university. Also, like all investments, the earlier you start, the better.
Refer to the link below to review different budgeting strategies to allocate your money for investing in a RESP:
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