RESP or RRSP? Cover Both Bases With One Investment
What if I told you that you could get two tax-efficient investment vehicles out of the same initial investment? Sounds interesting, 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.
How do you grow your RESP in Quebec?
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 found the right vehicle with RESPs! The government supplements the amounts invested in an RESP by at least 30%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) enrols in eligible post-secondary studies,2 they get the government grants and the income earned on grants and contributions. They will receive these amounts in the form of Education Assistance Payments (EAP). The EAPs are added to the student’s income, which is usually lower, greatly reducing or even eliminating the amount of income tax owed on these payments. The remaining funds (the contributions) will be returned to you3 at maturity, tax-free.
So what do you do with your money afterwards?
This simple tool will help you calculate how much your child’s postsecondary education could cost.
few secondes!
Invest your money in an RRSP
With the money you earn, you can 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 maximum annual CESG payment is $600 and the maximum annual QESI payment is $300. The lifetime maximum per beneficiary is $7,200 for CESGs and $3,600 for QESIs. Certain conditions apply. See our prospectus.
2. See our prospectus for eligible post-secondary programs. Certain conditions apply. Maximum withdrawal allowed under the Income Tax Act.
3. Subject to investment risks and applicable fees. See our prospectus.
