An registered educational savings plan from Heritage Education Funds is a savings plan used to fund a child’s later education years after he/she graduates from high school.
The purpose of an RESP is to ensure that there is enough money for college or university payments, and that there is a much higher chance of the child finishing university even in the event of a death in the family, or if the parents are unable to support the child after high school because of age or disability.
Since education will be better assured after high school, many people invest in this type of savings instrument in Canada and around the world.
Thinking of Getting an RESP
In Canada, RESPs are usually opened for children, but at the same time you can open one for yourself or another completely unrelated adult. The adult who is responsible for signing up for the education savings plan is called the main subscriber of the plan.
RESPs Are For Most Families
Do RESPs only begin to pay when a child is in college? Not necessarily. In Canada, the benefactors of Heritage RESPs can begin taking payments from their RESPs as early as secondary school or high school. These payments are called EAPs or “educational assistance payments.”
While EAPs are not the ‘meat’ of RESPs as these are designed to assist during the tertiary tier of education, the EAPs are a big help, especially to families who don’t earn a lot more than what they need to live comfortably.
Obviously, this instrument is aimed for families that are currently stable but run the risk of not being stable because of existing or foreseen issues in a decade or so, such as medical conditions or the age of the breadwinners of the family.
Important Facts about RESPs
Before signing up for a registered education savings plan, here are some important reminders:
1. RESP savings are considered tax-free in Canada. As long as the savings are within the normal bounds of what is expected of this savings plan, the taxman will not touch your investment earnings.
2. The federal government puts the money devoted to RESPs as grants or bonds. Grants or bonds are financial instruments that naturally earn over time. This applies to all RESPs that are subscribed for individuals aged seventeen and below. So it really is a good idea to start early with your financial savings for your child.
3. The lifetime maximum contribution for each child is $50,000. So if you have three children, you can only contribute up to $150,000 if you apply for an RESP for each of them.
Many banks and financial institutions that offer RESPs require monthly, quarterly, or annual contributions, though. It would be best to ask the institution offering the plan to you about their regular payment structure for clients.
4. The money that you get from an RESP are not tax-deductible. On the bright side, the money will not be taxed upon withdrawal.
5. A subscriber should be allowed by the financial institution to withdraw the money from an RESP at any time and for any reason at all.