Big Tax Refund?  Make Room to Plan Education Savings

The RESP may become a more important savings vehicle in 2017 now that the Education and Textbook Credits are playing out their swan song on the 2016 tax return.  Remember, you can still claim tuition fees and transfer up to $5000 to supporting individuals, however, with the reduced tax benefits in 2017, a fresh look at the RESP is worthwhile.

This is especially important if you are a boomer, with extra cash and a will to help your mortgage-bound children and their new babies.   Alternatively (or in addition), Millennials might wish to flip their tax refunds into an RESP to save for their children’s education.

The Registered Education Savings Plan (RESP), can be a lucrative way to save for minors.  Earnings are sheltered while the money is in the RESP. But also, the government sweetens the deposits with the Canada Education Savings Grant (CESG).

The CESG amounts to 20% of your annual contribution for each beneficiary, to a maximum grant of $500.  ($1,000 if you have unused grant room from a prior year.)  The maximum lifetime CESG is $7200.

There is no tax deduction for the RESP however, the principal withdrawals down the road are not taxable. Earnings, on the other hand, are taxable in the hands of the student, attracting little or no tax.  Check it out when you see your DFA-Tax Services Specialist and MFA-Retirement and Estate Specialists.  These pros can help you plan to save in tax-efficient investments for the whole family.

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