The answer is simple. Start an RESP (Registered Education Savings Plan) for your child as soon as possible to benefit from the effects of compounding!
Start an RESP for your child early and get the advice you need from the Walton Financial Group in Barrie, Ontario
Here are some important facts about RESPs and steps to take to maximize the benefits of this program.
The most important thing to consider is the incredible power of compounding.
Start an RESP for your newborn and make annual contributions of $2,500 annually until the child starts post secondary education at age 18. This will attract the maximum from the Canada Education Savings Grant which pays 20 cents on the dollar up to $500 a year. With a 5% annualized net return along with the other factors, the net RESP at age 18 could be as much as $78,000.
If you wait until the child is two years old the value of the RESP falls to around $48,000, so START EARLY! Having said that it is clear that raising kids is expensive and it is better to start late than never.
The purpose of having an RESP account is to save toward a child’s education. Typically, parents open RESPs for their own children, but you can open an RESP account for any child, and anyone can contribute.
An RESP has three main participants:
- The subscriber/plan holder (you)
- The promoter/provider (the financial institution)
- The beneficiary (the child who will use the money for their education).
An RESP is a tool that allows you to save for a child’s education – a potentially expensive proposition – while making use of government incentives. Some reasons to open one include:
- You can get extra grants from the government based on your income and the amount contributed to the account.
- Interest payments, dividends and capital gains from an RESP are not taxable until they are withdrawn.
- Having a dedicated savings account for a specific goal (education) is a smart personal finance strategy.
- Grandparents and other friends and family members can also contribute to an RESP.
- RESPs help children avoid the need for costly student loans.
- Contributing to an RESP helps you avoid financial demands once your child is in university.
Call the Walton Financial Group in Barrie, Ontario and arrange a discussion with a financial planner to get RESP advice suited to your situation and budget.
NOTE: the scenario described about is merely to show the importance of early investing and implies no guarantee of investment results or rates of return.
