Your child will require plenty of money to receive a good college or university education.
Fortunately, most of the savvy parents already know that the government offers ample assistance through RESP or Registration Education Savings Plan, a tax-excluded investment.
The government wants a child to complete the education he wants and provides education grants for up to $500 per year depending on the potential of the student. The lifetime limit allowed is $7200.
This money seems like a lot of money considering it can go up to $100,000 for university education, including books, tuition, food, housing, and other expenses are studied.
One of the other options one can consider is utilizing a Tax-free Savings Account (TFSA). It was first started in 2009 to collect funds with additional benefits of getting shelter from taxes.
But What Is Better – RESP or TFSP?
Which investment of the two is better for saving money for higher education?
As is with everything else, a family’s financial circumstances are always considerable.
RESP is more related to savings for post-secondary education, whereas TFSA can be used for general savings and can be extended towards purchasing a house, a school, and a trip around the globe.
RESP and TFSA are both excellent for making savings for education. They both have their limitations and benefits.
Let’s discuss RESP.
The main benefit includes 20 percent top up, which can extend up to $500 every financial year. It is known by the name of the Canada Education Savings Grant (CESG).
It is the most worthwhile place to put your money for your child’s future education.
In an RESP, the contributors (parents and other individual/individuals) can add up to a max of $50,000 per kid up till he/she attains the age of 31.
The best thing about RESP is Government Grants. It can go up to $500, but you don’t get this benefit from TFSA. Also, the income you generate in RESP is protected from tax, but there is no such advantage with TFSA.
Both the accounts utilize money post-tax. There is no deduction like RRSP.
The biggest drawback is that if the child decides against going to college or university, the government will get its share back. It includes all investments made with that portion. However, you have the right to keep your money and also money made on it.
Another disadvantage of RESP is that after the money is taken out, it will be taxed. It is not a big deal as post-secondary students have a low income that would move into the funds. But it should be told to the parents. Also, people whose kids start earning while still in school should think about it.
TFSAs is a great option for saving for education as they offer great flexibility. Parents can make a contribution of a maximum of $5,500 each year, and it is fairly easy to contribute and then withdraw from it. Both of these can be turned tax free.
One is always rewarded for investing well. So, if you are a pro, and placed your money into TFSA and receive huge returns – you receive huge benefits. The reason is that the money collected is, and when withdrawn, it becomes tax-free.
But remember, in TFSA, the government doesn’t make any contribution.
It must also be noted that parents usually can’t ensure that their kid’s money kept for education grows in the same fashion as in TFSA and when other financial problems are coming along.
Both investments are great when taken for a child’s future education. So, all who can afford it should reap the advantage, but if you want to pick out one of the two then, RESP is a better bet. According to heritage RESP reviews the benefits or RESP outdo TFSA and can certainly secure your child’s future post-secondary education with RESP.
To read more on topics like this, check out the business category.