How RESPs Work

How RESPs Work

What is an RESP?

A Registered Education Savings Plan (RESP)– is also known as a financial plan that helps you save for your child’s education right after high school. When your child enrols in college/University, they are entitled to take payments from their RESP. This payment is called Educational Assistance Payments (EAPs). EAPs contain grant money from the government and investment & Investment Earnings. This plan is not just for children; you can open an RESP for an adult too. The individual who opens a Registered Education Savings Plan is called the subscriber, and the promoter is the company that contributes to the beneficiary.

How does a Registered Education Savings Plan work?

Parents, Grandparents, Friends, and Relatives can open an RESP for a child. Under the plan, the subscriber can set up one or multiple beneficiaries. Below-mentioned is how an RESP generally works:

  1. The subscriber enters into an RESP contract with the promoter naming one or more beneficiaries.
  2. The subscriber makes contributions to the RESP. Government grants such as Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), or any designated provincial education savings program will pay the RESP.
  3. The promoter ensures the payments made to RESP are under the terms of the savings plan. Income in the RESP is not taxable or taxable at a lower rate.
  4. The promoter can make accumulated income payments (AIP) if the beneficiary decides not to attend college.
  5. The promoter can return the subscribers’ contributions, which will be free from tax.
  6. The promoter can make necessary payments to the beneficiary to help finance their higher education.

What you need to know about RESPs

  1. As long as your savings stay in the plan, your investment earnings will not be taxed.
  2. Federal governments, and in some provinces, the government puts money if you open an RESP for a child aged 17 and below.
  3. Some RESPs require annual or monthly contributions. You can put money up to a lifetime maximum of $50,000 per child.
  4. A comprehensive range of investment options like Stocks, Bonds, Mutual Funds, GICs are available for RESPs.
  5. Your child will be allowed to take money out of the RESP when they enrol in college or another qualifying education program.
  6. Under specified rules of the plan, an RESP can stay open for up to 36 years.

Where to open a Registered Education Savings Plan?

Institutions that offer RESPs are called providers. There are primarily two types of providers:

  1. Financial Institutions: These include Banks, Credit Unions, Mutual Fund Companies, Investment Firms, and Trust Companies. They offer individual and family plans.
  2. Scholarship plan Providers: Companies that only sell RESPs. They offer individual, family, and group RESPs.

To find out more information about RESPs, do not hesitate to contact Harpreet Puri today to schedule an appointment.