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How a Registered Education Savings Plan account work?
A subscriber who is usually the parent opens an RESP account for their children, who are the beneficiaries.
The subscriber, as well as grandparents and other guardians, provide contributions for the RESP account.
Government grants (if applicable) will be added to the RESP account.
The amount personally contributed to the account will be given a tax-benefit.
The RESP account provider also known as the promoter will ensure payments.
Beneficiaries are made according to the terms of RESP.
The payment can be availed by the beneficiaries for any tuition for post-secondary education.
If the child does not attend post-secondary education, the provider can return the contributions made back their original source tax-free.
RESP Key Features
- Contributions to RESPs are not tax-deductible.
- Contributions can be made up to 31 years; plan must be collapsed within 35 years after start date.
- If beneficiaries do not attend a post-secondary institution, up to $50,000 can be transferred to the contributor’s RRSP, if room allows.
- More than one beneficiary can be named.
Type of RESP’s
Individual Plans
In this plan, it names one beneficiary. You can invest the money on your own or if desires, with the help of a financial advisor. Relation of the beneficiary to the subscriber is not important. The beneficiary does not have to be related to the subscriber. The beneficiary can be over 21 when named.
Family Plans
In this plan, it allows one or more beneficiaries to be named in the RESP. The beneficiaries must be under 21 when named. The beneficiary should be related to the subscriber by birth/blood or adoption. In case if one beneficiary decides not to pursue schooling, other beneficiaries can use the same money.
Plans or Scholarship Trusts
In a pooled (group) plan, the fund is gathered from many families. The RESP administrator teams the contribution and put them in investments that earn a fixed rate of return. The earnings are shared equally among beneficiaries contributing in the plan. Monies from the fund are paid out in the form of scholarships to eligible students while they attend post-secondary education.
What happens to savings in an RESP when it expires?
- Any savings in the account received from the Canada Education Savings Grant (CESG) or Canada Learning Bond (CLB) will be returned to the Government of Canada.
- Any personal savings in the account will be returned to the person who opened the account.
- Any interest on both the above savings will be returned to you if the following needs are met:
- The person who opened the account is a Canadian resident.
- The RESP account is older than 10 years.
- All the beneficiaries are a minimum f 21 years old and are not eligible for EAP ( Educational Assistance Payment).
FAQ's
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