| Tax
effective strategies to fund
a child’s education
In the past few years, amendments
have been made to the rules
related to Registered Education
Savings Plans (RESPs) that eliminated
much of the inflexibility and
penalties that were problematic
if the beneficiary did not attend
a post-secondary educational
institution.
Unlike RRSPs, contributions
to RESPs are not deductible
for income tax purposes. However,
individuals can contribute up
to $4,000 per year per beneficiary
and receive the following benefits:
- Investment income generated
within the RESP will be taxable
to the student when the funds
are withdrawn, rather than
to the parent or grandparent
who made the contribution.
- Although the investment
income is taxable to the student
while attending school, the
student may not pay tax on
these amounts if either their
income level is too low or
they can eliminate their tax
liability by claiming a tuition
credit, moving expenses, education
credits or their basic personal
tax credit.
- Contributions to an RESP
qualify for a Canada Education
Savings Grant from the government.
The grant is 20% of the first
$2,000 contributed to a maximum
of $400 per year.
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