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RESP: Free Money Folks

in Registered Education Savings Plan, University Costs

For those of you who don’t know about the RESP program (and are Canadian of course) you need to look at it (if you have kids, if you don’t, just keep working on those RRSPs). This is effectively free money from the government for your kids to go to post secondary school (not just University as well, college programs and post secondary technical programs also fit into this, but research as much as you can).

For up to $2000 you put in every year the government will kick in a percentage of their own depending on how much money you make in the year:

  • If your family income is greater than $72000 or so, you get a 20% one time kick in from the government. This means if you put in $2000, it turns into $2400.00 within 3 months, HOLY COW!
  • If you make less than $72000, there is even MORE money kicked in for your kids in the one time payment.

So the catch is that an RESP is not like an RRSP, in that the money put in is treated as AFTER tax money (i.e. you don’t get to write it off your taxes, like an RRSP). Your kids also have to go into a post secondary program, or you lose the one time grants as well, so watch for that. However, these things are TRANSFERABLE to other children and even spouses, but they do have a set time period as well (but don’t take my word on this, READ first).

On the positive side, the program pays out in your kids hands, so taxed at a lower rate. They pay tax on any GROWTH in the fund (not the original funds put in, right, that was after tax money). I am not sure whether the grants are taxed or not, if anyone knows, leave a comment for me, and I’ll update folks on this.

Look into it folks, if you have kids!

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