Choosing the Right Provider for Your Registered Education Savings Plan
The RESP (Registered Education Savings Plan) is a good option if you are considering to invest in your children’s education, especially if you feel that they would like to obtain a post-secondary degree. Such RESP is sponsored by the government and it is registered with the Canada Customs and Revenue Agency such that it is allowed to increase tax free.Money received at the plan’s maturity is treated as income and maybe taxable from the student.
The plans are controlled by private firms or persons who will gather the contributions and then invest the money accordingly. Total contributions can be up to $4,000 per year per beneficiary and the plan has a lifetime tax-free cap of $42,000. Students probably would like to have more plans, but the limit is strictly imposed per student.
Most importantly is that the government is going to add 20 per cent or $400/year to the initial $2,000 up to and to include the year that the students turn 17 on their birthday. This is known as CESG or Canada Education Savings Grant and any amounts contributed in are excluded from the annual ceiling for taxation purposes.
A student can get $7,200 from CESG on the maximum throughout the plan’s lifetime.In case of any CESG amount that was not claimed for a number of years, an accumulated amount of up to $800 can still be paid. In the event that the RESP will not be utilized for educational reasons, any CESG contributions of the government must be repaid.
Things to consider when selecting an RESP provider.
The RESP is available from a lot of financial companies that have the license to offer such, but each of them is different. Because of the so many available options, it is recommend not to choose an RESP provider on impulse if you want to work with the right one for your needs. The provider is going to help you select the correct RESP, advise you about making investments, manager your RESP, and give the money when it is time for your child to go to post-secondary school.
There are providers that may require you to pay a service fee or they can have limits on how frequently you may contribute. Before you decide to open the RESP, ask them to tell you all the requirements involved such as fees, penalties, payment options, etc.
Also, you have to inquire what plans the provider can offer, what are the benefits, and how much it will cost. The investment options may also differ. Providers may choose to invest the RESP money in stocks, mutual funds, investment certificates, savings accounts or term deposits. Such options differ in terms of risks as well in returns.