Registered Education Savings Plan | einsured.ca

Registered Education Savings Plan

RESP

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An RESP is a tax-free investment account that can be used to save to pay for a child's post-secondary education.

A Registered Education Savings Plan (RESP) is the ideal way for parents to help their children save money for post-secondary education. The cost of education has remained relatively stable in Canada, but the cost of living is quickly rising. RESPs are becoming increasingly popular as families start investing in their children's education early on. But what exactly is an RESP? In this article, here’s everything you need to know about RESPs. How does the RESP work? As a long-term investment strategy, an RESP allows families to contribute to their child's education. In addition to being tax-free, investments in this account may qualify for government contributions like the Canada Education Savings Grant (CESG) or Canada Learning Bond (CLB) - this constitutes free money from the government towards your child's education costs. An RESP involves three important actors:
  • The subscriber. Often the parents are the ones who open and contribute to RESPs.
  • The provider. The financial institution where the RESP is held will pay out the funds after the child has completed post-secondary education.
  • The recipient. Eventually, the funds will go to the child whose name is on the RESP.
Subscribers will open RESP accounts and will continue making regular contributions as their child grows. Setting up an RESP is very simple. All you need is the SIN number of the child you want to name as a beneficiary. To open an account, just stop by your preferred financial institution. As soon as the child graduates from high school and enrols in a qualifying program at a recognized educational institution, the provider will distribute the money and any interest earned to the child in order to help finance their post-secondary education. RESPs can remain open for up to 36 years, so a child need not go straight from high school to university. Types of RESPs There are three types of RESP plans available, and the right one for your child depends on your family’s structure and needs. Family Plan RESPs of this type is best suited for families with more than one child since you can designate more than one beneficiary. This type of plan is for those who are related to you by blood or adoption, and who are your children, stepchildren, grandchildren or siblings. Any qualifying beneficiary can benefit from a family RESP. Individual Plan An individual plan can name only one beneficiary. Individual RESPs, on the other hand, can be opened by anyone - you don't have to be related to the beneficiary to open one. Such an RESP could be opened for the child of a close friend, for example. An adult can also open this type of RESP for themselves or for another adult. Group Plan Often referred to as group scholarships, group RESPs pool contributions from several families. The funds are then invested in low-risk products like guaranteed investment certificates to grow tax-free. Later, the pooled funds are divided and distributed among the beneficiaries as annual payments for the first four years of their post-secondary education. A group RESP is more restrictive and has higher fees than other types of RESP. Participants are typically required to commit to a strict payment schedule and can name only one beneficiary, but they do not have to be relatives. RESP contribution limit There is no limit to how much you can contribute per year, but there is a lifetime limit of $50,000 for all RESPs for a beneficiary. Keeping this in mind is especially important if your child has several RESPs open. A 1% tax will be charged on the excess contribution in case there are too many donations in your child's name. The tax will be charged every month until the excess is withdrawn.

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