Group (pooled) RESP plans in Canada: Education savings advantages & disadvantages?
What are the advantages of a registered education savings plan?
The major advantage of RESPs is that the government will match some of your contributions. Although you don’t get any tax breaks by contributing to an RESP, the gains aren’t taxed until the money is taken out. Since the account is in your child’s name, they’ll likely pay very little, if any, taxes.
What is a group RESP?
A group RESP is an investment product that can help people save for a child’s post-secondary (university or college) education. You promise to buy “units” from the provider. You may pay the full price of the units up front, or commit to make regular payments toward the price of these units.
What is an RESP What are the advantages of an RESP?
Child who continues education after high school
Your money grows tax-free while it is in your RESP. You do not get a tax deduction for the money you put into an RESP. The money that your investment earns while it is in the RESP will not be taxed until money is taken out to pay for your child’s education.
What is the best RESP plan in Canada?
The best RESP providers we have reviewed in Canada are:
- Wealthsimple RESP. Wealthsimple is Canada’s top robo-advisor with over $10 billion in assets under management. …
- Questwealth RESP. Questrade’s managed investment services, Queswealth Portfolios offer RESP plans. …
- Justwealth RESP.
What are advantages and disadvantages of RESP?
An RESP can assist you in making the most of your education savings through tax advantages and matching government contributions.
The Cons
- Retirement savings shortage. …
- No extra room for saving. …
- “Pay-as-you-go” strategy in funding. …
- You want your child to pay themselves. …
- RESP grants ineligibility.
What are the three basic types of RESP How are they different?
There are three basic types of RESPs: individual plans, family plans and group plans. Anyone can open an individual RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles and friends. You can even contribute to an individual plan for yourself.
What is pooled RESP?
What Are Group RESPs? Group RESPs are also called scholarship trusts, or pooled plans, and are sold only by scholarship plan dealers. They are different from other RESPs. In Group RESPs, you have a contractual agreement to buy a set number of plan units, which then represent your share of the plan.
What are the disadvantages of an RESP?
Disadvantages of an RESP
The biggest disadvantage of an RESP is that any earnings that are withdrawn but not used for post-secondary education incur a twenty percent penalty, and income taxes must be paid on the money.
How does RESP family plan work?
If you have more than one child, a family plan may be the right option as the savings can be shared among all your children. In a family plan, all beneficiaries must be related, by blood or adoption, to the plan subscriber, such as grandchildren, great-grandchildren, brothers or sisters.
What is best investment for RESP?
Everything from cash and mutual funds to GICs, stocks, bonds and ETFs can be used to build up your RESP. As you approach the date of decumulation, you may want to gradually shift to a more conservative strategy, particularly if your initial strategy was strongly growth oriented.
How do I maximize my RESP grant?
In summary, in order to maximize the RESP grant limit, you will need to contribute the maximum each year, which is $2500 per year, and then $500 will be deposited into your RESP account right away via the RESP grant.
Are RESPs a good idea?
So while RRSPs are great for retirement, when you know you’ll be in a lower tax bracket, and TFSAs are great for savings goals, since the money you withdraw isn’t subjected to taxes, RESPs are great resources for young people starting off in their education and their financial journey.
Is RESP the best way to save for education?
Put your money where it can earn a better return (after paying off your non-tax-deductible debt), and then it can be used for any purpose. However, if an RESP would help force you to save for your child’s education when you wouldn’t do anything otherwise, perhaps it is the option for you.
What are the benefits of an RESP vs putting the money into an investment account?
A TFSA allows you to skip the income tax on that earned interest income in the account and grow your money tax-free. When you use an RESP, you’re also spared from paying annual income tax on any interest, investment income or grants earned in account.
Whats better TFSA or RESP?
With a TFSA, you have the flexibility to withdraw and then re-contribute that amount again the following year. With an RESP, withdrawn contributions are not added back to your contribution room and cannot be re-contributed. If you cannot make an RESP contribution in any given year, you can carry over unused Basic CESG.
What is the best investment account for a child Canada?
Recommended investing options
- Registered Education Savings Plans (RESPs)Registered Education Savings Plans. Registered education savings plans are one of the best ways to save for a child’s education. …
- Tax-Free Savings Accounts (TFSAs)Tax-Free Savings Accounts.
At what age do RESP grants stop?
You can contribute to an RESP for up to 31 years, and the plan can remain open for a maximum of 35 years. Under the CESG, the government matches 20% on the first $2,500 contributed annually to an RESP, to a maximum of $500 per beneficiary per year. The lifetime maximum per beneficiary is $7,200, up to age 18.
Is RESP tax deductible in Canada?
Contributions to RESPs are not deductible from the subscriber’s income. A plan can only accept a contribution for a beneficiary under the plan if the beneficiary is resident in Canada and the beneficiary’s SIN has been provided to the promoter of the plan.
How much does the Canadian education savings grant add to my RESP?
$500
Each year, the CESG provides 20% of the Registered Education Savings Plan (RESP) contributions of up to $2,500. That means the CESG can add a maximum of $500 to an RESP each year. Children from middle- and low-income families might be eligible to get the Additional amount of CESG.
What happens to RESP money if not used?
Government grants will be returned at the time of the withdrawal but growth is kept. The money that was contributed to the RESP over the lifetime of the plan may be withdrawn and returned to the subscriber. Contributions withdrawn are not subject to any additional tax.