RESP is an abbreviation for Registered Education Savings Plan. RESP can be defined as a type of investment done by the parents, so as to save for their child’s post-secondary education.
In RESP the invested money grows tax-free and will be accessible only by the beneficiary child. The respective savings plan may remain open for up to 36 years. Your child can withdraw the money at any time for any whatsoever reason. While enrolling themselves in higher education courses, a child can start withdrawing their money from the savings plan and utilize it to get admitted to a reputed and renowned college or university. Usually, children can receive the payments through EAP (Educational Assistance Payments) from their saving plan. The EAPs are a collection of investment earnings and government grants. The child who receives the EAP under this saving scheme is called the “Beneficiary”.
Generally, this saving scheme of RESP is well prevalent in Canada. The savings program may allow a lifetime investment of a maximum of $50,000 per child. Also, through the Canada Education Savings Grant (CESG), the federal government might add up to $500 in a year to the corresponding RESP until by the end of the year the Beneficiary turns 17 years old. Children belonging from families with a poor financial condition will be provided with additional benefits.
An RESP can be gifted to a child by following some rules and guidelines. A brief description of the rules is provided below:
1. To get a Social Insurance Number for your child:
A Social Insurance Number would be required for the child to set up an RESP and register for the government grant. It might be needed in their later life during her first job and credit card.
2. To learn about various existent options:
There are three types of RESP namely;
You must learn about the different aspects of each option and only after complete understanding of these options, you must decide which one you should opt for.
3. To determine and analyze the pros and cons of each option:
As we know, a coin has two sides. Henceforth, each of the RESP options existent under the savings plan possesses some merits as well as demerits. So by analyzing the pros and cons of each option, choose the appropriate option for your child.
4. To decide the amount and procedure of the contribution:
To receive the full grant, you would require investing $2500 per year per child. If that is suitable for you, you are guaranteed to get a 20% return on your money. As there are no contribution deadlines, you can deposit at least once a year to earn the advantage of the CESG. However, depending on your suitability you can opt for a monthly contribution.
Thus, gifting your child with an RESP would not only make him/her earn at an early age but also secure his future post-secondary educations.