Are parents and grandparents missing the opportunity of having the Federal Government help with their child’s/grandchild’s post-secondary education? In a lot of cases, the answer is yes.
Many people don’t realize that the funds deposited to an RESP belong to the subscriber and do not need to be used for the benefit of the beneficiary’s education. As a result, parents and grandparents are choosing to place funds in regular savings accounts. If they were aware that once the beneficiary is enrolled in a post-secondary program, the subscriber can withdraw any or all of the contributions for his/her own purposes, we may see more deposits being made into the RESP.
From a grandparent’s view, they could deposit $2,500 funds into an RESP for a grandchild each year to which, at minimum, a 20% grant would be received. In 10 years time when the child goes onto post-secondary schooling, the RESP would be worth approx. $36,426 based on a 3.5% rate of return; $25,000 contributions, $5,000 grant and $6,426 interest. The grandparents can withdraw the $25,000 for their own use with no taxation and the $11,426 in grant and income is used by and taxable to the child. With the grant/income paid to the beneficiary over a couple of tax years, the tax payable may be minimal if anything at all.
Can you think of friends, relatives, members who should be taking advantage of the grants available? Talk to them.