Benefits of Getting RESP for Your Children
Not every parent in North American can make their children take post secondary education because it is very expensive. Not all kids go to college, but if they want to go you should have been prepared beforehand, otherwise it will be a great financial burden to you. This will only happen if the family has some financial security of some sort.
A Registered Education Savings Plan or RESP is important for your financial health if you have children who want to go into post secondary education. The RESP is a savings plan that can grow tax free and is something that is sponsored by the government. Money paid from the plan at maturity may be taxed as income for the student.
Private companies or individuals are the plan administrators and they can invest the money that they collect from the plan. Every year, the contributions can reach up to $4,000 per student beneficiary with a lifetime limit of $42,000 without any tax implications. Students sometimes get more than one plan but the limit is strictly per student.
20% of your contribution is added by the government until the student reaches his 17th birthday. This is called the CESG or the Canada Education Savings Grant and any amounts paid in are not included in the annual limit for tax purposes.
A student can receive from CESG a maximum of over $7,200 over the lifetime of the plan. Any unclaimed contribution of the CESG each year will accumulate and $800 can be paid which was not previously claimed. RESP that is not eventually used for educational purposes will require that the contribution given by the CESG be returned to the government.
If you are a resident of Canada and have a Social Insurance Number or SIN, you can apply for the RESP. The SIN of both the student and the one providing the contributions must be provided to the promoter at the inception of the plan.
The three different RESP plans are given below.
In the non-family plan, anyone can make a contribution and there are no limits to the amount but only one student can benefit from it.
The family plan can have one or more beneficiaries as long as they are blood relatives or adopted by the person making the contribution. There are no restrictions as to when and how much is paid.
The group plans have requirements of the amount that is paid and when it should be paid and are usually offered by foundations. Each age group will have a particular plan and all members will take a share. Before deciding on the group plan, there should be adequate research done with the plan providers because the rules to this plan are quite complicated.