Short Course on Savings – Getting to Square 1

Registered Education Savings Plan (RESP) for Your Children’s Post Secondary Education

Most parents worry about letting their children have post secondary education because it is very expensive in North America and can only be afforded by wealthy families. 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. If families are looking at having some financial security, then sending their kids to college is a big possibility.

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. This is a government sponsored savings plan which 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. Each student may have 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. RESP that is not eventually used for educational purposes will require that the contribution given by the CESG be returned to the government.

If you are a resident of Canada and have a Social Insurance Number or SIN, you can apply for the RESP. At the start of the plan, the SIN of both the student and the one who will make the contributors are required to be submitted to the plan promoter.

The three different RESP plans are given 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. There are no restrictions as to when and how much is paid.

Foundations offer the group plan, and there are restrictions given to the amount that needs to be paid, and the time that one has to pay it. Each age group will have a particular plan and all members will take a share. Because of the complicated rules attached to the group plan, there is a need to do a thorough research together with the plan provider before committing to this plan.