Registered Education Savings Plan : The Basics
What is an RESP?
Being concerned about how to afford a college education for my son, I made some enquiries about a Registered Education Savings Plan, or RESP. This is a special savings account that makes provision for post-secondary education costs. If you are like me savings and investing are very important to my family. Those who subscribe to a RESP are also entitled to receive the government’s Canada Learning Bond (CLB) if they qualify, and the Canada Education Savings Grant (CESG) which, as I found out, can provide a welcome boost to the funds.
Who is it for?
An RESP is set up to provide financial support for those aged 17 years and over, and who are undertaking eligible courses of study. Contributors to a RESP are normally parents or guardians; however, a grandparent, other relative or even a family friend can also make contributions.
How do you get one?
A simple two-step process helped me to get things underway. First of all I checked out my Social Insurance Number (SIN), and then I chose an RESP provider. My SIN gave me access to government benefits and programs and, when I began to research RESP providers, I found there were a number of options – I could go to a reputable bank, credit union, umbrella company, or other financial institution to get the process started.
Make sure you research who you decide to go with as you will be with them for a long time and they will be managing your contributions. Know what questions to ask each provider and get the answers before you proceed. Ie: fees involved and any penalties.
What does it do?
An RESP will provide your child with funds towards the costs of a course of study. The course must be at least three weeks long, and have a minimum ten hours of work or instruction per week to be eligible as a full-time course. This program can also cover part-time education, as long as at least 12 hours per month is spent on study.
When is it used?
When your child goes to university or college, takes up a place at a trade school, a CEGEP, or at some other institution that is certified by the Minister of Human Resources and Social Development, the RESP can be activated. Alternative arrangements for children who don’t take up educational courses beyond high school should be discussed with your RESP provider.
Getting access to the CESG is a major advantage of having a RESP; the plan acts like a tax shelter, as contributions will have been paid at the time funds are deposited. In the case of the CESG, the government will pay a percentage of funds saved directly into the RESP. The actual amount available will depend on the net income of the family up to a maximum $7200.
Families with lower incomes can additionally benefit if they are eligible for the Canada Learning Bond. For example, if you already receive National Child Benefit you could benefit from a lump sum deposit when you start your RESP plus an annual contribution thereafter.
The use of an RESP can also give you a clear goal to budget your money towards. Setting up a direct debit can ensure a regular amount is paid into the RESP. Having all of your finances recorded and accounted for can also allow you to budget sensibly and see where you are spending unnecessarily. Keep all of your receipts and analyze your spending, this will allow you to see where your money could be better spent. Setting yourself a weekly spending amount is also useful. Try to pay using cash; using cards is far too easy, allowing you to quickly go over your limit. Remember to always shop around for the best bargains, looking online allows you to compare prices from a number of retailers, and there are often coupons available for all sorts of products.
There are further financial incentives depending on where you live. In Alberta we have the Alberta Centennial Education Savings (ACES) grant, which contributes a lump sum for babies where a RESP is in place, then annual additions at certain ages throughout the school years. In Québec there is a similar incentive to save for future educational needs.
Disadvantages by Mr.CBB
I believe all parents should set up a registered education plan for their child as education in an investment worth investing in and so is your child.
For further help and information check with Human Resources and Skills Development Canada or your RESP provider – remember this can be a bank, credit union, or other financial body.
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