TFSA Vs The RESP
With the availability of the TFSA coming to Canadians in 2009, many are interested to learn how this account compares to the RESP account when considering higher education costs. Qualified050-707 education costs are a concern for many parents, therefore many families work to build savings to cover these future costs. One of the most popular accounts for qualified education expenses is the RESP account. How does the RESP account compare to the TFSA when it comes to saving for higher education costs?
To start, contributions into both accounts are done so on an after tax basis and the accounts will both grow on a tax deferred basis. One of the primary differences to become familiar with is that the growth within the RESP account is taxed upon withdrawal while the growth within the TFSA is tax free upon withdrawal. This tax free difference can amount to a significant savings for the account holder over time.
When it comes to account flexibility, the TFSA has more options than the RESP account. In the event that the beneficiary does not attend college or they do not use the entire amount of funds for their qualified education expenses, there are heavy penalties to the account050-649 holder on the remainder of the funds. With the TFSA account, as the account holder is not the beneficiary in most cases, if the beneficiary does not need the funds for higher education, the account holder can use the funds for any other financial purpose without a penalty being assessed.
One benefit that the RESP account has over the TFSA account is the eligibility for the CES Grant. Due to this benefit, many financial professionals are recommending that families contribute into the RESP account enough to become eligible for this grant and that they redirect all other savings into the TFSA starting in 2009. This combination approach to financial planning will allow both of the largest financial benefits to be capitalized upon; tax free withdrawals and eligibility for the Grant.
College planning can be a challenging goal to plan for as it is often near or during the parent's retirement years. The added expense adds financial complexity to any household. Not only is it important to have enough funds set aside for this financial goal, but it is important to consider taxes and flexibility of funds. Most parents do not wish to increase their tax burden during these peak income years or during their retirement years. Therefore, saving into the TFSA account allows for tax free withdrawals and no 050-565impact to the parent's annual reportable taxable income.
In addition, the TFSA offers ultimate flexibility to the parents in the event that their children don't utilize the funds completely or they don't attend higher education. The funds can be easily redirected toward their retirement goal without penalty. So while there are financial benefits to both the RESP and the TFSA accounts, most financial professionals plan to redirect college savings into the TFSA starting in 2009.
To start, contributions into both accounts are done so on an after tax basis and the accounts will both grow on a tax deferred basis. One of the primary differences to become familiar with is that the growth within the RESP account is taxed upon withdrawal while the growth within the TFSA is tax free upon withdrawal. This tax free difference can amount to a significant savings for the account holder over time.
When it comes to account flexibility, the TFSA has more options than the RESP account. In the event that the beneficiary does not attend college or they do not use the entire amount of funds for their qualified education expenses, there are heavy penalties to the account050-649 holder on the remainder of the funds. With the TFSA account, as the account holder is not the beneficiary in most cases, if the beneficiary does not need the funds for higher education, the account holder can use the funds for any other financial purpose without a penalty being assessed.
One benefit that the RESP account has over the TFSA account is the eligibility for the CES Grant. Due to this benefit, many financial professionals are recommending that families contribute into the RESP account enough to become eligible for this grant and that they redirect all other savings into the TFSA starting in 2009. This combination approach to financial planning will allow both of the largest financial benefits to be capitalized upon; tax free withdrawals and eligibility for the Grant.
College planning can be a challenging goal to plan for as it is often near or during the parent's retirement years. The added expense adds financial complexity to any household. Not only is it important to have enough funds set aside for this financial goal, but it is important to consider taxes and flexibility of funds. Most parents do not wish to increase their tax burden during these peak income years or during their retirement years. Therefore, saving into the TFSA account allows for tax free withdrawals and no 050-565impact to the parent's annual reportable taxable income.
In addition, the TFSA offers ultimate flexibility to the parents in the event that their children don't utilize the funds completely or they don't attend higher education. The funds can be easily redirected toward their retirement goal without penalty. So while there are financial benefits to both the RESP and the TFSA accounts, most financial professionals plan to redirect college savings into the TFSA starting in 2009.
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