A Registered Educations Savings Plan is a government enabled system that allows you and other family members to make contributions to your child’s education in a systematic manner. This also allows you to gain access to a number of grants that can boost your savings.
Why is it important?
RESPs are considered a great choice for saving for the following reasons:
1.Government incentives
An RESP can help you make use of the CESG and Canadian Learning Bonds based on your income. These accumulate to a large sum over the years and can be super helpful in funding your children’s education comfortably.
2. Tax-Free Savings
Over the years, your contributions made to the RESP can be withdrawn tax-free. The grants received from the government are taxable once withdrawn but at very low rates, giving you more profit than loss!
3. It can be easily transferred
The greatest feature of an RESP is its flexibility. Not all plans are created this way, but when you choose one which is flexible, even if your child does not make use of the amount, it never goes to waste. It can be transferred easily to your other offspring or can even be converted to an RRSP to help finance your retirement comfortably.
Final Word
The dependence on a good education to get placed in the right organizations has increased significantly. Most parents, without a plan like RESP would not be able to work towards saving the right amount, considering the increased costs and fees involved.
The RESP provides parents with an investment plan that only grows exponentially. The government aids that come with it, work towards providing better opportunities to children even from very low-income families. The many plans can be tailored to work for the betterment of your child’s future and provide them with a comfortable cushion.
Get started now! Open your RESP account and secure your child’s future with Canadian LIC.
How does RESP work?
How this plan works
- You, the contributor, enter into a contract with a promoter to open a RESP account for your child, the beneficiary.
- You can then make contributions to the RESP that accumulate over time. Government grants (if applicable) will be paid to the RESP as well. Government grants are provided for children under the age of 17.
- The amount in the RESP is not taxable and your savings can grow tax-free.
- When your child enrolls in post-secondary education, they can start taking payments called Education Assistance Payments (EAPs). These are included in the student’s income. The promoters makes sure payments from the RESP are made according to the terms of the plan. Your child can claim the EAPs when they enroll in university, college or any other specified qualifying education program.
- The account can stay open for up to 36 years. Under specified plan rules, the plan can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.
- If your child wished to not pursue higher education, the funds can be transferred to a sibling. If there is no sibling, the people who contributed money may transfer it to their personal RRSP tax-free for retirement savings.
Please note that when you close your RESP, the money that you have put into the RESP is returned to you. However, you will have to pay tax on the earnings in the RESP. Although there will be earnings on the CESG, the grant must be returned to the Government of Canada.
Types of RESP
There are three types of RESPs:
- Individual RESP – This plan is pretty straightforward. Anyone can open this account and contribute to it, be it a parent, grandparent, guardian, a benefactor or even yourself.
- Family RESP – This plan can have more than beneficiaries, they just have to be related to the contributor or formally adopted by the contributor. The beneficiaries should be under the age of 21 to be added to the plan.
- Group RESP – In this plan, a single child is a beneficiary, even if the child is not related to the contributor. Many people invest in this plan and the beneficiary shares the pooled earnings with children of the same age group. This plan has a lot more restrictions and rules than other RESP plans.
Feel free to contact us for more information on RESP plans. We can also help you find out about any conditions that may apply to the plan if your child does not continue their education after high school.
Guide To Choosing The Best RESP Provider For You
Deciding whose hands you choose to put your children’s future education is a daunting process. Here’s our guide to choosing an RESP provider!
While searching for a good RESP plan, most of us don’t give much thought to the RESP provider. However, this is the person who will be going to be advising us, taking care of our RESP, and will be in charge of providing us with the monetary value once we want to take it out.
Why is paying attention to your RESP provider so important?
The RESP or Registered Education Savings plan provider is in-charge of your plan. Some providers tend to have extra costs or hidden fees in their plans. It is important to know
if there is any fee when you reach a limit on the amount or whether there is a service fee they may be taking. Sometimes, certain providers may even charge penalties when you want to close your account pre-maturely.
Another thing to keep in mind is that some portion of RESP money can be invested in the market too. Some people prefer to invest in other avenues to increase their value. This can be stock or mutual funds. As a provider, they will be doing so from their end. These methods usually have risks involved and need to be monitored on regular basis.
How can you choose the best RESP provider for you?
Well, the first step in ensuring if the provider is good for you is to get to know them.
Meeting your RESP provider can help you understand their ideology and make the right decision. Asking them questions like “What is the extra fees involved? Do I have to pay anything once I have opened the RESP? Will I get regular reports on investments? and other such crucial questions, you can get a grasp of the way they function.
Checking their credibility using references and testimonials from previous clients can also help you make a better decision. It is also recommended to check whether they are allowed to provide you an RESP or not. Another way to verify the credibility of your RESP provider is to test their knowledge of the industry. This can help you determine how far your provider is going to be able to help you benefit.
Stop your search for the best RESP provider! Get in touch with Canadian LIC.
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The above information is only meant to be informative. It comes from Canadian LIC’s own opinions, which can change at any time. This material is not meant to be financial or legal advice, and it should not be interpreted as such. If someone decides to act on the information on this page, Canadian LIC is not responsible for what happens. Every attempt is made to provide accurate and up-to-date information on Canadian LIC. Some of the terms, conditions, limitations, exclusions, termination, and other parts of the policies mentioned above may not be included, which may be important to the policy choice. For full details, please refer to the actual policy documents. If there is any disagreement, the language in the actual policy documents will be used. All rights reserved.
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