Registered Education Saving Plan (RESP)

Registered Education Saving Plan (RESP) is a tax saving shelter specially designed for post-secondary education. Purpose of RESP is to save in advance for the expenditure related with post education of your child. It is difficult to accumulate such a huge amount in a short period of time and because of that most of us opt for education loans. The interest for this can be quite high.

Cost of sponsoring education can be very heavy on your pocket but if you start saving at the right time, the story could be a little different. Registered Education Saving Plan (RESP) is a planned way of saving for your child’s education. RESP is a registered savings account started by the Canadian government. The government also makes some contribution to a Registered Education Saving Plan account depending upon certain conditions.

There are other registered investment accounts that you can go for if you want to save for the future, but RESP offers some additional benefits that no other saving account gives.

Benefits offered by RESP are:

• Any Canadian citizen or permanent resident can open it.
• It is not necessary that the recipient of policy i.e., child should be related by blood with the contributor.
• Returns earned are greater than any regular savings account.
• The amount received at maturity is tax-free.
• The Canadian government contributes one time in the form of grants in the RESP account.
• Government contribution is limited to $7200 for children below 18 years of age.
• RESP amount can be utilized for any expenditure done on post-secondary student’s education.
• There is no annual limit to contribution.
• It is not possible to contribute more than $50,000 in a RESP account.

There are some points that you need to take care of if you invest in RESP and they:

• If the contribution made in RESP is not spent on recipient’s post-secondary education till the account completes 36 years then the grant given will be retrieved by the government.
• You have to pay a penalty on the RESP amount that you use for other purposes than child’s education. The penalty will be equivalent to 20% of the amount left in the RESP account.

1. Individual RESP allows saving for education for one child only and it is not necessary that the contributor is related by blood with the recipient. Contributions can be made by only a single person.
2. Family RESP allows saving for more than one recipient but only by a single contributor. This type of account can be opened for children who are part of the same family and are related by blood with the contributor.
3. Group RESP allows one or more contributors who want to save for the education of the same child. Having blood relation with the recipients is not compulsory.

Irrespective of the type of RESP account, the Canadian government makes contributions in RESP accounts. Depending upon the types of grants, the federal or provincial government takes responsibility for the RESP grant.

One of the grants that contribute to majority of the RESP accounts is:

1. Canada Education Saving Grant (CESG):

• Federal government is responsible for grant disbursement.
• Grant amount will be a maximum 20% of your contribution or $500 per year.
• Maximum amount that can be disbursed in the entire RESP tenure is $7200.

Top Financial at Brampton, advisors will help you have a better understanding of Registered Education Saving Plan accounts, how it works and related details. You can connect with us anytime you want; we have solutions for any insurance or investment specific problems. We keep your needs at priority and advise you for your better financial future.