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Planning You Child’s Post Secondary Education with RESP

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. If families are looking at having some financial security, then sending their kids to college is a big possibility.

If your children want to go to college then it can be possible through RESP or Registers Education Savings Plan. The RESP is a savings plan that can grow tax free and is something that is sponsored by the government. Money paid from the plan at maturity may be taxed as income for the student.

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. Each student may have more than one plan but the limit is strictly per student.

One benefit of RESP is that the government will add 20% to the first $2,000 per calendar year or $400 up until and including when 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. You can claim $800 of amounts not previously claimed from the CESG. 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.

The three different RESP plans are given below.

The non-family plan can only have one beneficiary but anyone can make contributions whenever they want for whatever much they want to pay.

The family plan can have one or more beneficiaries as long as they are blood relatives or adopted by the person making the contribution. There are no requirements as when you should pay and how much you are going to contribute.

The group plans have requirements of the amount that is paid and when it should be paid and are usually offered by foundations. Plans are given to age groups who share the contributions equally. 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.