Education

Looking For An RESP Alternative? Read This Article

Looking For An RESP Alternative? Read This Article

Rеgistеrеd Еducation Savings Plan (RЕSP) is considered a potent investment scheme to accumulate funds for a child’s future education.  

However, one restriction with RESP is that it is strictly limited to educational security. While post-secondary education might involve substantial financial requirements, other future aspects might also pose an economic burden for your child. 

These include funding for a business, technical degrees outside Canada, making down payments for the first house, surviving a financial crisis/recession or combating a medical emergency. Withdrawing funds apart from education purposes will attract a penalty. Additionally, RESP has an expiration date. Check here for more information on alternatives to RESP.

Alternatives for Rеgistеrеd Еducation Savings Plan (RЕSP)

Thankfully, alternative investment plans such as Child Plan insurance schemes coupled with RRSP, TFSA account, etc., are great options to secure your child’s future. 

Invest in a Child Plan 

A Child Plan is an alternative investment plan that helps you secure your child’s future not just for education but also for life. 

Whether your child wants to attend the best medical school in the world or aspire to start a business, a Child Plan fund can support them. 

  • The Child Plan constitutes a “Participating” Whole Life Insurance plan that also multiplies as an education fund.
  • In the Child Plan scheme, your invested funds/guaranteed cash value starts growing completely tax-free from the first day of opening.
  • Your child gets the opportunity to earn annual tax-free dividends throughout their lifetime. 
  • The benefits of the Child Plan scheme are not limited to your child but future generations as well. Permanent whole life insurance increases in financial value throughout your child’s life and future generations are eligible for earning the benefits. 

The Child Plan fund is divided into two parts:

  • Accumulated cash value that can be used for any substantial future expenses
  • Life insurance value

Features of Child Plan

  • You can initiate a Child Plan scheme investment 14 days after the birth of your child.
  • You can legally transfer the Child Plan funds tax-free anytime after your child turns 18. You can govern the funds as long as your child doesn’t require the money. Once you feel your child is responsible/mature enough to manage the fund, you can transfer it. 
  • You also have the opportunity to utilize your Child Plan annual tax-free dividends towards your annual deposits.
  • The cash value doesn’t get affected by the external financial crisis (natural calamities, recession, etc.). Thus you ensure a flexible and secured financial future for your children.
  • Since the Whole Life insurance plan is a component of the Child plan insurance scheme, your child will be permanently covered.
  • The Child Plan insurance scheme is permanently funded after 20 years of opening. You don’t need to make any further financial contributions. 

Benefits of a Child Plan

Control of Usage: You don’t need to worry about your child spending the invested amount in futile expeditions. As their parent, you get the opportunity to control the use of the Child Plan accumulated monetary values even after you transfer it to your child. 

Multi-Purpose Usage: RESP funds can only be utilized for RESP Designated Educational programs. However, cash values from the Child Plan insurance scheme can be utilized for any university or vocational program across the world.

Accumulated cash values earned from the scheme can support your child for any financial requirement such as education, down payment on a home, establishing a business, or providing financial assistance for their future family (even your grandchildren).

Anyone can open it: Child Plan life insurance can be opened by parents, grandparents or close relatives/well-wishers, aunts and uncles or even legal guardians.

Tax-Free Savings Account (TFSA)

While Child Plan is one of the best alternatives to RESP, you can also consider a combination of Child Plan and TFSA. 

  • Although the name suggests a savings bank account, a TFSA functions more like an investment account. The funds deposited in the TFSA earn interest. You can contribute a specific amount of money every year (check the current limits). 
  • TFSAs can be incredibly rewarding as the withdrawals are not liable to tax deductions. In fact, there is no limitation on the amount of withdrawal at one time.
  • Thus, TFSAs are a good option for medium-term or long-term goals. The earlier you start investing, the greater your fund will grow in size. 

Here are four ways TFSA funds can be beneficial:

  • Stay prepared for any unexpected financial crisis. You can consider the Child Plan funds as future savings and TFSA investments as an emergency fund.
  • Extra financial security for your child’s education
  • Contribute a certain amount to your kid’s big purchases in the future
  • Educate your child on money management rather than stashing cash

Make a contribution to an RRSP (Registered Retirement Savings Plan) 

An RRSP plan might not be an early investment plan, you can start and contribute to an RRSP only after a certain age limit. Thus the true benefits of RRSPs can be utilized when paired with a supportive investment scheme such as Child Plan or TFSA. 

  • A minor is eligible to open an RRSP with their parent or legal guardian’s consent. 
  • However, your child needs to have a job (temporary, part-time or permanent), earn an income and must obtain a T4 from their employer/company in the previous tax year. So this plan is ideal for teens who want to have their own investment. 

RRSPs can help with:

  • Promoting healthy financial habits
  • Purchasing a property with RRSP Home Buyers Scheme

However, there are two drawbacks with RRSPs when compared to Child Plan and TFSA:

  • RRSP withdrawals will be taxed.
  • The tax benefit derived from RRSP investments may be small or non-existent.

Conclusion

The best way to grow your funds is to invest early and diversify your investments. While RESP is a popular education assistance scheme, depending solely on this single investment plan might not be a great choice. Combine your RESP with an alternative plan. Not just parents, even grandparents are eligible for opening a Child Plan for their grandchildren. 

A Child Plan provides a secure option to provide financial stability to your children. While TFSA and RRSP are great tools for teaching financial management at an early age. Start investing today and enjoy excellent returns. 

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