Registered Education Savings Plan (RESP) for Your Children’s Post Secondary Education
To have a post secondary education is North America is something very expensive, and unless you are a wealthy family, you will have second thoughts about letting your children have them. If you want to let your children go to college someday, you should make plans for it because you might find yourself with a large financial burden if you don’t. This will only happen if the family has some financial security of some sort.
A Registered Education Savings Plan or RESP is important for your financial health if you have children who want to go into post secondary education. The government sponsors RESP and is allowed to grow tax-free. Money paid from the plan at maturity may be taxed as income for the student.
This savings plan is administered by private companies and persons who will collect the contributions and invest them accordingly. Every year, the contributions can reach up to $4,000 per student beneficiary with a lifetime limit of $42,000 without any tax implications. Students sometimes get more than one plan but the limit is strictly per student.
20% of your contribution is added by the government until the student reaches his 17th birthday. The additional money given by the government is called the Canada Education Savings Grant or CESG, and this amount in not included in the annual limit for tax purposes.
The maximum amount that any student can receive from the CESG is $7,200 over the plan’s lifetime. Any unclaimed contribution of the CESG each year will accumulate and $800 can be paid which was not previously claimed. All money added by the CESG to the RESP should be returned to the government in the event that the money is not used for educational purposes.
Any student who is a resident of Canada and has a Social Insurance Number (SIN) can apply for RESP. This SIN must be provided to the promoter at the plan inception, and the one making the contributions are also required to provide their SIN.
RESP plans comes in three types and they are discussed below.
In the non-family plan, anyone can make a contribution and there are no limits to the amount but only one student can benefit from it.
In the family plan, the beneficiaries, which can be more than one should be a blood relative of the contributors. When to pay or how much to pay are not restricted.
The group plans have requirements of the amount that is paid and when it should be paid and are usually offered by foundations. The students are divided into age groups and they are equally given a share of the contributions. The rules attached to the group plan is quite complicated and should be researched thoroughly with the plan providers before committing.