Some Basic Information about RESP & How to Choose a Provider
A Registered Education Savings Plan or RESP is a key to financial health if your kids might want to proceed to post secondary education. Such RESP is sponsored by the government and it is registered with the Canada Customs and Revenue Agency such that it is allowed to increase tax free.Money received at the plan’s maturity is treated as income and maybe taxable from the student.
These plans are managed by private individuals or companies that collect the contributions and then invest them appropriately. Contributions per calendar year per student (beneficiary) can be a maximum of $4,000 with a $42,000 lifetime ceiling without tax implications. The ceiling is strictly for every student although each may have more than a single plan.
Most importantly is that the government is going to add 20 per cent or $400/year to the initial $2,000 up to and to include the year that the students turn 17 on their birthday. Referred to as the Canada Education Savings Grant or CESG, for short, any paid in amounts are not considered in the yearly limit for the purposes of taxation.
The CESG grants a maximum of $7,200 for every student over the duration of their plan.Any unclaimed amount every year can accumulate and can be paid to as much as $800. In case the RESP is not spent for educational purposes in the end, any CESG payments will need to be refunded to the government.
Choosing your RESP provider
The RESP is available from a lot of financial companies that have the license to offer such, but each of them is different. With the various options to select from, see to it that you spend time to carefully select the provider that can best meet your needs. Your provider will assist you in choosing the right RESP, as well give some advice on investments, oversee your RESP, and then release the money when your beneficiary is ready to take up post-secondary education.
There are providers that may require you to pay a service fee or they can have limits on how frequently you may contribute. Ask your provider to discuss all the costs, penalties, limits, payment options, as well as any other requirement prior to your opening of the RESP.
It is as well important to inquire about the different plans the provider has to offer along with the benefits and their costs. Investment options will likely vary as well. The providers can choose from mutual funds, guaranteed investment certificates, stocks, savings or time deposits on where to invest the RESP funds. Such options differ in terms of risks as well in returns.