What if I told you that you could put your money to work twice with no risk of loss? Intriguing, right?
No, I’m not talking about some shady gambling or investment strategy. I’m talking about highly reputable and worthwhile investments that are simply waiting to be used to their full potential: RESPs and RRSPs.
They’re formally known as Registered Education Savings Plans and Registered Retirement Savings Plans. As you might guess, the first one allows you to invest money to help fund your child’s post-secondary education, and the second one to save for your retirement.
As a parent, I would never want to risk my children having no money for their post-secondary education. I want a reputable investment that pays off. I’ve hit the jackpot with RESPs! The government supplements the amounts invested in an RESP by at least 20%1 in grant money on the first $2,500 contributed each year.
And you don’t have to invest $2,500 a year to benefit from these grants! Every amount contributed to an RESP qualifies you for the grants.1
When your child (the RESP beneficiary) enrolls in a post-secondary program, they get the government grants and the income earned on the grants and contributions. They will receive these amounts in the form of education assistance payments (EAPs),2 while the remaining funds (the contributions) will be returned to you3 at maturity, tax-free.
So what do you do with your money afterwards?
You make a contribution to your RRSP! The EAPs from your RESP help you pay for your child’s education, and you can invest the savings you get back in your RRSP, if you have sufficient contribution room.
That way, you benefit from grants in the RESP AND the lower taxable income of an RRSP, all with the same investment!
Personally, I’m still making contributions to my RESPs, but you can be sure that as soon as I get my RESP savings back in a few years, I’ll take advantage of this strategy by reinvesting those dollars in my RRSP.
Ready to cover all your bases?
A parent who loves an investment that pays off
1. Canada Education Savings Grant (CESG) of 20% to 40%. Based on adjusted family net income. Quebec Education Savings Incentive (QESI) of 10% to 20%. Based on adjusted family net income. The annual limits are $600 for the CESG and $300 for the QESI. The lifetime limits per beneficiary are $7,200 for the CESG and $3,600 for the QESI. Some conditions apply. See our prospectus.
2. See our prospectus for eligible post-secondary programs. Some conditions apply. Maximum withdrawal allowed as per the Income Tax Act.
3. Subject to investment risks and applicable fees. See our prospectus.