RESP- a perfect solution for your children’s education
Over the years the education sector has been transforming its system on how to make in and offline education better and to an extent, they have found massive success in it. There have been new streams introduced in colleges and universities as well as upgrades made in the existing curriculum and this is great news for students.
However, the downside is, the cost for higher education has also gone up severely and both students and they find themselves in education loan debts which itself takes a lot of time to repay, this goes especially for students who pay it back by themselves. However, the Federal government of Canada has looked into this problem and as a solution, RESP or Registered Education Savings Plan was introduced. Through this, not only families play a role in building their children’s future, but the government as well. Read on to find out what an RESP is and how it works.
A brief of the scheme
As parents, you would want your young ones to have the best education money can offer. But with the rising costs in the education industry, that has become a problem. Not to worry though, for an RESP plan can help your child meet their education goals. You see, it is a type of savings vehicle you can start depositing even when your child is just a toddler. An annual deposit of $2,500 can increase up to $50,000 by the time your child reaches post-secondary and you can withdraw that amount and use it for their studies.
You should also know that this amount would also include a maximum of $7,500 deposit from the government in the form of a grant (Canada Education Savings Grants). On top of that, this account is tax-sheltered, meaning whatever you contribute, you will not have to put it when you’re filing for your taxes. Overall, when your child is ready for higher studies, if you have opened an RESP account beforehand, you will not have to worry about education expenses at all.
Things that you should know about RESP
With RESP, the savings grow tax-free, as long the earnings stay in the plan there is no tax on them.
The Federal government contributes to the fund and in some regions, the provincial government does that as well.
Yes, the contributions are not tax-deductible, but withdrawals called education assistance payments are included in the students’ income.
You can invest in a wide range of options such as stocks, bonds, GICs, mutual funds. Some plans invest the money for you while in others, you have the option on how to invest your savings.
Your child will have the right to take the money out of the RESP account when they enrol in a university or a specified education program.
An RESP can stay open for up to 36 years and in some cases, beneficiaries are also eligible for a disability tax credit.
You can contribute whenever you want, but the lifetime cap is $50,000
Where should you open an RESP account?
Before applying for this policy and opening an account, you should know where to open the plan and where you will find the most benefits from it. Companies that offer RESP are called providers and there are two types:
These include credit unions, banks, mutual fund companies, investment funds and trust companies.
Scholarship Plan Dealers
These companies sell only RESPs and they offer individual, family, and group plans. More information about different types of RESPs is below.
The three different types of RESPs
This plan is specifically made for one beneficiary and anyone can open and contribute to the plan. If the beneficiary decides to drop studies, the policyholder can name another beneficiary.
As the name says, in this plan the beneficiaries have to be a part of the same family. There is no minimum deposit to this plan and the policyholder decides how to invest and divide the contributions.
This is different from individual or family plans. You can open the account for anyone, be it your family or someone you know, and you'll have to maintain a minimum deposit amount. Group plans often have additional rules about how much and how often your child can take EAPs, and which education programs are eligible. Know the rules before you open a group plan.
RESP for adults
One of the best advantages of this plan is, it is available for adults as well. As an adult, you can save tax-free for your own education in an individual plan. This gives an option to anyone who had to leave studies for any reason and pick it back up from where they left off.
You can find out all the information about RESP by getting in touch with Inslyf. Our team will be more than happy to help you.