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. Not all kids go to college, but if they want to go you should have been prepared beforehand, otherwise it will be a great financial burden to you. This will only happen if the family has some financial security of some sort.
Parents with children who want to enter college can benefit from the Registered Education Savings Plan or RESP. 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.
Private companies or persons administer the plan and they will collect 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. The lifetime limit is per student even if he has more than one plan.
Before reaching his 17th birthday, the government adds 20% to the amount that is contributed to the RESP. 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. If the RESP is not eventually used for educations purposes, the CESG payments will have to be repaid to the government.
If you are a resident of Canada and have a Social Insurance Number or SIN, you can apply for the RESP. The SIN of both the student and the one providing the contributions must be provided to the promoter at the inception of the plan.
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, only family members can make contributions to the plan which can benefit one or more students. There are no restrictions as to when and how much is paid.
The group plan are offered by foundations that set how much is paid in and when. Each age group will have a particular plan and all members will take a share. Before deciding on the group plan, there should be adequate research done with the plan providers because the rules to this plan are quite complicated.