A Registered Education Savings Plan, referred to as the RESP, is a savings program that helps people to save for their children’s post-secondary education. It is offered through financial institutions such as banks and credit unions. Parents are free to open RESPs for their children or the children of their family members who are under 21 years. The amount is released if the child completes high school and is enrolled in an eligible university or college program. The money is meant to cover their education costs. Although most RESPs are open for children, adults can also open their RESPs.
Facts About RESPs
If the savings remain in the plan, they will not be taxed. Therefore, savings or investment earnings will grow tax-free.
- The federal government also contributes
The federal government and in some instances, the provincial government may add more money if a parent saves for a child who is 17 years or below.
- There is a maximum contribution
The maximum lifetime contribution is C$ 50,000. Some plans have flexibility where one can put money whenever they want while others set monthly or annual contributions.
- There is a wide range of investment options
There are many investment options available for RESPs. The most common ones include bonds, stocks and mutual funds. While some plans allow people to make decisions on how to invest their savings, others invest the money for them.
- The RESPs can stay open for a maximum of 36 years
The maximum period an RESP can remain open is 36 years. Whoever, RESPs for beneficiaries eligible for the disability tax credit can remain open for a maximum of 40 years under specified plan rules.
Quality education is expensive and can be draining if there is no proper planning. Parents should open Registered Education Savings Plans for their children.