Registered Education Savings Plans or RESPs are government-sponsored education funds in Canada that encourage families to prepare for and heritage education funds invest in post-secondary school education. There are post-secondary school training programs and qualified university programs that will enable the beneficiary to claim and make us of, EAPs, or Educational Assistance Payments. Educational Assistance Payments will be given out when plan matures.
Note 1: Anyone can open an RESP.
Though parents are expected to open the RESPS of their children, there is no law that explicitly forbids anyone else from opening an educational plan. And you can open an educational plan for an adult as well, or for yourself even. However, if you want to attain a financial goal when your child is in college age already, then it is best to open an RESP when he/she is still young.
Note 2: Tax-free investment growth
Tax-free investment growth means the interest in your investments can accumulate without the taxman cutting off portions from it as it grows. In the long term, this will definitely be a good thing for the beneficiary. However, you have to stay within the plan and the money has to be used for post-secondary school education. Otherwise, it will be taxed as income, and the government will levy a penalty.
Note 3: There is a lifetime maximum
The lifetime maximum contribution for one child is $50,000. The Canadian government can sponsor up to $7,2000 but there is no way that you can contribute more than $50,000. This applies even if you apply for multiple RESPs for the same person, or if someone else opened an heritage RESP on behalf of your child.
Note 4: There is a time limit.
While the time limit is reasonable and there is sufficient time for your child to prepare for university, know that RESPs are valid for 36 years only, and the countdown begins on the same year that you opened the RESP.
Note 5: You can get an RESP from different institutions.
The most popular way to get an RESP is signing up through a bank. Other options that you might be interested in are investment companies, scholarship fund dealers, and the like. All these institutions in Canada are covered by the policies of the government. Where they differ are in the promotions they offer to beneficiaries and subscribers, and in the payment schedule they require of subscribers who open the RESPs in the first place. We recommend that you read the fine print closely before signing up for a plan.
Note 6: RESPs sponsorship is an incentive to parents.
RESPs allow your investment as a parent to grow and at the same time, the taxman will not take reduce the growth of your investment. In addition, parents get bonus money from the Canadian government and this helps grow the final EAP total for the beneficiary.
Note 7: You need to track contributions accordingly.
If you signed up for a family plan, the actual contributions for each child has to be monitored yearly so you have an exact idea as to how each side of the plan is growing.