Incredible Lessons I’ve Learned About Savings

Registered Education Savings Plan (RESP) for Your Children’s Post Secondary Education

Most parents worry about letting their children have post secondary education because it is very expensive in North America and can only be afforded by wealthy families. 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.

Parents with children who want to enter college can benefit from the Registered Education Savings Plan or RESP. 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.

20% of your contribution is added by the government until the student reaches his 17th birthday. This government aid falls under the Canada Education Savings Grant or CESG and the amount contributed are not taxed.

Over the lifetime of a plan, the CESG can add over $7,200 to a student’s plan. Any unclaimed contribution of the CESG each year will accumulate and $800 can be paid which was not previously claimed. RESP that is not eventually used for educational purposes will require that the contribution given by the CESG be returned to the government.

Any student who is a resident of Canada and has a Social Insurance Number (SIN) can apply for RESP. At the start of the plan, the SIN of both the student and the one who will make the contributors are required to be submitted to the plan promoter.

RESP plans comes in three types and they are discussed below.

The non-family plans allows other people to contribute to the plan without limit, but there can only be one beneficiary.

The family plan can have one or more beneficiaries as long as they are blood relatives or adopted by the person making the contribution. There are no requirements as when you should pay and how much you are going to contribute.

The group plans have requirements of the amount that is paid and when it should be paid and are usually offered by foundations. Each age group will have a particular plan and all members will take a share. Before deciding on the group plan, there should be adequate research done with the plan providers because the rules to this plan are quite complicated.

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