What are Registered Education Savings Plans (RESPs) and How do They Work?
Registered Education Savings Plan or RESP is a type of savings plan intended for families that hope to save for the education of their children after high school. Although RESPs, generally speaking, are opened to prepare for a child’s educational future, one can open for the benefit of another adult. The one who opens the plan will then be called the “subscriber.”
As soon as your kids enroll in post-secondary education, they automatically become entitled to payments courtesy of their RESP; to be more specific, they will take EAPs or educational assistance payments. By definition, EAPs are comprised of investment earnings as well as grant money from the government. Once your child begins receiving EAPS, he or she then is called the beneficiary.
Therefore, if you happen to be residing in Canada and you are hoping to learn more about RESP before you avail of it, then you’ve come to the right place since we have all the basic information you need to know.
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1 – One of the first things you must know about your savings in RESP is that they’ll grow tax free. In other words, so long as your investment earnings stay in the plan, it means it never will be subjected to tax.
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2 – Next, know that if you save for your kid who’s 17 years old or younger, it means that the government is obliged to put money into the RESP, which in turn is classified later on as a grant or bond.
3 – Furthermore, you have the right to put money whenever you want and the usual lifetime maximum is usually around $50,000 per kid. But you should be aware as well that some plans will require you to set and schedule monthly or annual contributions.
4 – It also is interesting to know that contributions aren’t also considered as tax deductible. You however can withdraw them from the plan whenever you want and it will be tax free.
5 – There is no denying that you’re quite new to this type of educational plan, but the good news is that there really are more than a handful of investment options made available for those hoping to get RESPs, including bonds, mutual funds, GICs, and stocks.
At the end of the day, you just have to learn that many of the available plans out there are flexible enough to allow you to make that all important decision of investing your savings.