Registered Education Savings Plan, or heritage education funds RESP, is a Canadian savings plan created to help families save for their children’s post-secondary education. It is used to receive Canadian Education Savings Grant (CESG), which adds a solid 20% return to the RESP account on your child’s behalf. In other words, you are earning money by saving it.
When using RESPs and CESGs, here are some tips you must follow:
Family or Individual Plans? Know your options.
There are two general types of RESP accounts: family plans and individual plans. Each of them offers a certain degree of flexibility, depending on your current family situation and your future plan.
Family plans can have multiple beneficiaries under one account and they must be under 21 years old at the time of registration. You will have to divide the allocation of contributions among the beneficiaries. Meanwhile, individual plans serve only one beneficiary. There’s no age restriction, although CESGs only pay to beneficiaries under 18 years old.
Let Your Child Contribute Too
If your child already has a part-time job, he or she must already be aware of why saving up through heritage RESPs is a good idea. You can encourage your child to contribute to the RESP account for his or her school savings.
Start while the Child’s Young
Indeed, raising a child is a challenging job. Not only should you make sure he or she grows up to be a capable and good person, you should also shoulder a lot of expenses that come with job. Therefore, you’ll only be able to save according to what you can afford.
Fortunately, you won’t lose the chance to collect CESG since you can carry forward any unclaimed grant for the future years.
It might take a while before you can catch up with the maximum CESG payment of $1,000 per year, it’s good advice to set up an RESP account while your child is still young. You should also invest extras money into the RESP.
For instance, if you suddenly acquire a huge lump sum, such as inheritance, bonuses, or tax refunds, it’s a great idea to allocate some parts of all of those to RESP savings.
Take Advantage of Transfers
There are some cases where one of the children would or could not pursue post-secondary education various reasons. However, the heritage RESP for that child wouldn’t be wasted since you can transfer the account to a different child.
Remember the Account Lasts 35 Years
Quite surprisingly, a lot of people aren’t aware that RESPs can be kept open for as long as 35 years. You can withdraw your contributions any time—tax free. You can use the grant and investment income to pay for most post-secondary programs, such as short-term studies and certificates.
Additionally, if your child decides he or she wouldn’t pursue a post-secondary education, you don’t have to collapse your account right away. There’s plenty of time for time. You can still wait a little longer and see if your child might need the RESP, and all the perks that come with it, at a later time.