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Registered Education Savings Plan, what is it, and do you need one?

There are different types of registered savings plans, which serve different purposes and goals. For an RESP, the goal in mind is your children’s future. Education is getting more expensive, and as time goes on and inflation goes up, education will become even more expensive. Post secondary education can be extremely expensive, depending on where your children decide to attend school. If your children get accepted to one of the biggest universities, the odds are they’ll be travelling abroad, and universities abroad can easily reach $50,000 a year in today’s world. If you have new born children, count on that number going up even more by the time they make it into university. In fact, education is so expensive today, a lot of children can’t go to university, or can’t go to the university of their choice. RESP’s allow parents to invest money into a registered fund, that will grow over time and provide capital for their children’s future education. This will allow them to have the money required to attend the school of their choice, as long as the RESP is opened at an early age, and invested in the proper product / fund. In fact, these funds will not only allow you to invest for future educational goals, the interest accrued will protect and hedge your funds against educational inflation expenses.

When can you start contributing into your child’s RESP?

As soon as your child has received a social insurance number (SIN), you can begin contributing into an RESP for them. The only two requirements are:

  • Your child must be a Canadian citizen
  • Your child must have a social insurance number.

Contribution Maximums:

You can contribute up to a lifetime maximum of $50,000 per child. Unlike RRSP’s, when you contribute into an RESP, you cannot deduct the contributions from your taxable income. However, the earnings on the investment becomes tax deferred, until your child / beneficiary needs the money for post-secondary education, and funds get withdrawn. It is the beneficiary who then pays the taxes, based on their income tax bracket for that year.

Advantages of RESP’s

Did you know that both the Federal and Quebec Governments participate in contributing to your child’s RESP? Did you also know that when you use Team Levine in order to open an RESP, that you will receive additional contributions on top of the government grants?

Here’s how the Federal Government contributes:

The Federal Government provides incentives to families in order to increase their use and contributions into RESP’s. When you contribute money into your child’s RESP, you receive a Canada Education Savings Grant (CESG) from the Federal Government. The grant can be different depending on your families income and which income bracket you fall into.

In general, all families will receive up to 20% of their yearly contribution up to a maximum grant of $500 a year. This means, that if you contribute $2500 a year into your RESP plan, you then max out the plan and receive the maximum Federal Government contribution for the year. This gets contributed directly into your RRSP fund.

For families that have a net income of $44,701 or less, you will receive an extra 20% on the first $500 you contribute per year. Meaning the government grants you 40% of your first $500 of contribution, and then the regular 20% on contributions between $500-$2500 for an annual maximum grant of $600 per year.

For families that have a net income between $44,702 – $89,401, they will receive an extra 10% of grant on their first $500 of yearly contributions. This means that the Federal Government will grant you 30% on the first $500 of contributions in the year, and then back down to the standard 20% grant for your contributions between $500-$2500 for an annual maximum grant of $550 per year.

At the end of the day, no matter which income bracket you fall into, the total maximum lifetime CESG qualified for is $7200.

Also, if you have any unused contribution space from previous years, it gets carried forward to future contribution years.

Maximum Age to Receive CESG:

In order to receive these grants you must start contributing before the end of the calendar year in which your child turned 15. However, the earlier you begin, the better!

Here’s how the Provincial Government contributes:

The Provincial Government provides incentives to families in order to increase the use and contributions into RESP’s. When you contribute money into your child’s RESP, you receive a Quebec Education Savings Incentive (QESI) from the Provincial Government.

For regular income families, the basic contribution is 10% of your yearly contributions. You can receive this 10% up to a maximum contribution of $2500 per year, which would get you the maximum yearly QESI of $250 a year. This gets contributed directly into your RRSP fund.

For families that are considered to be in lower income levels, they may qualify for an extra $50 incentive per year, which could bring your QESI up to $300 per year.

Keep in mind, that any previously unused QESI contributions from previous years can be rolled over to future years, at a yearly maximum of $250 added on top of the basic amount.

Eligibility to the QESI:

In order to be eligible to receive the Quebec Education Savings Incentive, you must:

  • Be a resident of Quebec
  • Have a Social Insurance Number
  • Be under 18 years old

Here’s how Team Levine can help contribute:

As an insurance broker, Team Levine can setup an RESP through insurance contracts. Through our network, we are able to match up to 15% of the clients yearly contributions. That’s right, on top of the Federal Governments basic 20% (possibly more) contribution, as well as the Provincial Governments 10% (possibly more) contribution, Team Levine can also setup up to a 15% match of your yearly contribution as well. This can provide you with a match up to 45% of your yearly contributions, in which you will then earn interest on top of, all depending on the type of fund you wish to invest within.

Team Levine, helping families reach educational savings goals faster and more efficiently. Give us a call today, and we’ll be glad to help out!

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