Unused Money in Your Child’s RESP? Explore Your Options
When it comes to planning for your child’s future education, a Registered Education Savings Plan (RESP) is a popular choice among parents. But what happens when there’s unused money sitting in that account? Don’t worry; you have options. Let’s dive into how you can make the most of your RESP funds while ensuring you’ve set your child up for success.
Understanding RESPs and Their Benefits
What is an RESP?
A Registered Education Savings Plan (RESP) is a government-supported savings account designed to help families save for a child’s post-secondary education. Parents, family members, or friends can contribute to the fund, which can grow tax-free until the child enrolls in a qualifying educational program.
Why Invest in an RESP?
- Government Grants: The Canadian government offers matching grants, which can significantly boost your savings.
- Tax Benefits: Contributions grow without being taxed until withdrawal, making it a smart investment strategy.
What To Do With Unused Funds?
Evaluate Your Situation
Assess Contribution Limits
Before making any decisions, check if your contributions have reached the lifetime limit of $50,000 per child. If you’re anywhere near this cap, it might be time to reconsider how the remaining funds can be utilized.
Future Education Plans
Consider your child’s future academic aspirations. If they plan to pursue a post-secondary education but are currently undecided, retaining the funds could still be beneficial.
Options for Unused Money
Withdraw or Transfer
Withdraw the Funds: You may opt to withdraw your principal contributions minus any grants received. However, be aware that certain conditions apply, and you may face tax implications on the growth earned from your contributions.
- Transfer to a Sibling’s RESP: If you have another child, you can transfer unused funds to their RESP, allowing you to maximize the grants and contributions.
Keep It for Future Growth
If you anticipate that your child will attend post-secondary education in the future, consider keeping the funds in the RESP. The money can continue to grow tax-free, providing a more substantial benefit when they eventually enroll.
Closing the RESP
If your child has decided not to pursue post-secondary education, you can choose to close the account. Here are your exit strategies:
- Return of Contributions: You’ll receive your original contributions back without any penalties.
- Non-Refundable Grants: Any government grants that were added to the RESP will need to be returned, and you may be subject to additional fees.
Making Informed Decisions
Seek Professional Advice
Navigating the world of RESPs and unused funds can be complex. Consider consulting a financial advisor who specializes in education savings plans. They can provide personalized guidance based on your financial situation and long-term goals.
Plan for the Future
Even if you have unused funds today, educational costs are continuously rising. Take proactive steps to ensure that you are maximizing those funds to secure your child’s educational future.
Conclusion
Having unused money in your child’s RESP doesn’t have to be a source of worry. With the right information and strategies, you can turn those idle funds into a stepping stone for future educational success. Whether you decide to withdraw, transfer, or hold onto the funds, the choice is in your hands. Make sure to explore all your options and plan wisely to navigate the financial landscape of education savings.
For more insights on financial planning and saving strategies, consider checking out Investopedia or Canada.ca for up-to-date resources.
