If you’re a Canadian parent, one of the most important things you can do for your child’s future is to start saving for their education as early as possible. A Registered Education Savings Plan (RESP) is a great way to do this. In this blog post, we will discuss what an RESP is and how it works. We’ll also talk about the benefits of using an RESP to save for your child’s education.
Understanding how an RESP works
An RESP is a savings plan that allows parents to save money for their children’s post-secondary education. The government offers a 20% grant on contributions, up to $2,500 per year. This means that for every $1,000 you contribute, the government will add another $200.
The money in an RESP can be used to pay for tuition, books, and other costs related to post-secondary education. The funds are usually invested so that they grow over time. Once the child turns 18 or 21 (depending on when they start school), they will receive the money to help pay for their education.
RESP contributions also have a limit depending on your provider. There is no specific limit to the amount you can contribute per year, but there is a lifetime limit of $50,000 for all RESPs for a beneficiary. The frequency of your RESP contribution will also differ depending on your provider. Some providers will let you contribute freely when you want to, while some providers may give you specific schedules for your contributions.
How To Open A Registered Education Savings Plans (RESP)
RESPs can be opened by parents, grandparents or other family members who are 18 years of age or older. The child must be under 21 years old when they start school in order to qualify for grants and bonds.
It’s very simple to open an RESP. All you need is your child’s SIN number and you can go ahead and look for a provider or financial institution, Banks and credit unions usually offer RESPs, so if you had previous contact with them, you can ask them if they offer RESPs.
RESP contributions are made by the parents or anyone else who wants to contribute on behalf of their children. Contributions are not tax-deductible, however, they will grow tax-free inside the RESP until they are withdrawn.
Contribution schedules may vary across different RESP providers. Some providers will request that you follow a specific schedule, while others will let you contribute whenever you want. Also, make sure to find a trusted provider for your RESP, as some companies might leave you with a headache in the future. Read this article from Insurance for Children to learn more.
What Happens to Unused RESP Funds?
If your child decides not to pursue post-secondary education, you will have a few options for the money in their RESP. You can transfer it to another child’s plan or withdraw it as income and pay taxes on it (if you’ve contributed more than $50,000). This is why an RESP is considered a good option if you’re looking to save for your child’s education.
There are many ways you can save for your child’s future, and the RESP is a good choice. If you’re looking for a government-backed way to save up for your child’s education, then you can freely opt for RESPs. Just make sure that you plan your finances and investments wisely. Make sure that you don’t limit yourself to only one method of investing and look into other options as well so you can have a diversified portfolio.