What is a RESP and How do You Choose the Right RESP Provider?
The RESP, which stands for Registered Education Savings Plan, will help to secure your kids future especially if you think that they would want to pursue additional education after high school. It is sponsored by the government and the Canada Customs and Revenue Agency allows it to grow free of tax.Money received at the plan’s maturity is treated as income and maybe taxable from the student.
These plans are managed by private individuals or companies that collect the contributions and then invest them appropriately. Contributions per calendar year per student (beneficiary) can be a maximum of $4,000 with a $42,000 lifetime ceiling without tax implications. Every student can have additional plans but the cap is strictly for every 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. Referred to as the Canada Education Savings Grant or CESG, for short, any paid in amounts are not considered in the yearly limit for the purposes of taxation.
A student can get $7,200 from CESG on the maximum throughout the plan’s lifetime.Any unclaimed amount every year can accumulate and can be paid to as much as $800. In case the RESP is not spent for educational purposes in the end, any CESG payments will need to be refunded to the government.
Choosing the RESP to work with
The RESP is available from a lot of financial companies that have the license to offer such, but each of them is different. With the various options to select from, see to it that you spend time to carefully select the provider that can best meet your needs. Your provider will assist you in choosing the right RESP, as well give some advice on investments, oversee your RESP, and then release the money when your beneficiary is ready to take up post-secondary education.
There are providers that may require you to pay a service fee or they can have limits on how frequently you may contribute. Ask your provider to discuss all the costs, penalties, limits, payment options, as well as any other requirement prior to your opening of the RESP.
Also, you have to inquire what plans the provider can offer, what are the benefits, and how much it will cost. Investment options will likely vary as well. Providers may choose to invest the RESP money in stocks, mutual funds, investment certificates, savings accounts or term deposits. These are different options that comes with different rates of return and risks as well.