5 Takeaways That I Learned About Savings
Registered Education Savings Plan (RESP) for Your Children’s Post Secondary Education
Not every parent in North American can make their children take post secondary education because it is very expensive. It is important to plan for your children’s college education and think of the necessary finances for this decision. 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 government sponsors RESP and is allowed to grow tax-free. The money is taxed upon maturity as it is considered the student’s income.
Private companies or persons administer the plan and they will collect contributions and invest them accordingly. The yearly contribution for each student reaches up to about $4,000 and their lifetime limit is $42,000 without taxes. 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. IF you fail to claim CESG contribution each year, it will accumulate and the following years, you can claim up to $800 of additional fund from the CESG. All money added by the CESG to the RESP should be returned to the government in the event that the money is not used for educational purposes.
The RESP is for Canada residents who have a Social Insurance Number (SIN). 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.
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. When to pay or how much to pay are not restricted.
Foundations offer the group plan, and there are restrictions given to the amount that needs to be paid, and the time that one has to pay it. 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.