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. 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 RESP is a savings plan that can grow tax free and is something that is sponsored by the government. The money is taxed upon maturity as it is considered the student’s income.
Private companies or individuals are the plan administrators and they can invest the money that they collect from the plan. 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. This is called the CESG or the Canada Education Savings Grant and any amounts paid in are 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.
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.
There are three main types of RESP plans.
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.
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. 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.
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