The leaves are changing colour, the mornings are just a little chillier, and the Staples parking lot is full: fall is in session. And while it comes with the blessing of a little more peace and quiet during the week as kids return to classes and extracurriculars, few seasons test the strength of parents quite like fall. Making sure each child is well supplied for success in the year ahead, keeping abreast of registration deadlines for clubs and teams, not to mention playing chauffeur for those critical beginning-of-semester social events- it’s enough to make one yearn for summer’s chorus of “I’m bored”, “I don’t wanna put sunscreen on!”, and “when do we get to gram and gramps?”. Magenta can’t help you with divining what the ‘it’ colour of pencil case will be this season (though we consider a certain purple-pink to be a timeless classic)- but there’s one responsibility we can take off your plate: offering investment options for your child’s RESP.
Why hold shares in an RESP?
In Canada, RESPs are a tax-advantaged class of savings accounts. This means that you won’t be taxed on any income from interest earned on an RESP contribution until you hit the lifetime contribution limit of $50,000. And because most students have no or minimal other sources of income, and the withdrawal is taxed to the beneficiary, not the contributor, withdrawals from your RESP will likely be tax-free, too.
This means that RESPs are another tool you can leverage to maximize income and reduce the impact of taxation by distributing some of the returns on your Magenta investments to your children, securing them the freedom to pursue higher education.
How much should I contribute to my child’s RESP annually?
Unlike a TFSA or an RRSP, there’s no annual limit to how much you can contribute to an RESP. However, it’s important to note that the federal government will contribute an additional 20% on the dollar for the first $2,500 you invest in an RESP every year (which is to say, up to $500) if the beneficiary is under the age of 18: this is called the Canada Education Savings Grant (CESG). Between the additional $500 in CESG payments per year and annual payments of $2,500, you will have hit the lifetime contribution cap by the time your child is 18, making $2,500 the sweet spot.
What kind of investments can I hold in an RESP?
Guaranteed investment certificates (GICs), shares, stocks, exchange-traded funds (ETFs), and mutual funds can all be held in RESPs.
Interested in making your child’s tomorrow the best it can be?
Magenta has delivered strong returns and a reliable income to our investors. We safeguard capital by applying a risk-mitigated portfolio strategy. We hand-pick our portfolio of residential, primarily first mortgages, located exclusively in selected Ontario markets. Reach out to us today at shareholders@magentacapital.ca to learn more about how Magenta shares could optimize your RESP!