What are Registered Education Savings Plans (RESPs) and How do They Work?
Registered Education Savings Plan or RESP is a type of savings plan intended for families that hope to save for the education of their children after high school. But while majority of RESPs in this country are primarily for children, there also are those that can be opened for an adult. The one who opens the plan will then be called the “subscriber.”
As soon as your kids enroll in post-secondary education, they automatically become entitled to payments courtesy of their RESP; to be more specific, they will take EAPs or educational assistance payments. The EAPs we’re talking about are literally composed of government grant money in the RESP as well as investment earnings. Once your child begins receiving EAPS, he or she then is called the beneficiary.
So, if you reside in Canada and would like to avail RESP, here are some of the most important things you ought to know about this program; and mind you, there are a lot of things you first must understand before even considering it.
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1 – First things first, your savings actually will grow tax free. Simply put, as long as your investment earnings are staying put in your plan, it means they won’t be subjected to taxes.
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2 – It also is worthy of mention that if the child is under 17 years old, it means that he or she will be protected by the government by way of putting money into the RESP, which by the way is presented as either bond or grand.
3 – You must likewise take advantage of the fact that you have the ability to put money in every single time you want and the lifetime maximum is $50,000, at least for the most part. But in every rule, there always is an exception, and in this case, you might come across plans that require or strictly impose monthly or annual contributions.
4 – Also, know that contributions aren’t tax deductible, too. You also must know that you actually have the right to withdraw them tax free from he plan should you wish to.
5 – It may be true that you are relatively new and unfamiliar with this type of program, but understand that it’s never really a difficult decision to make because you have so many different investment options available, including bonds and stocks, mutual funds, and GICs.
At the end of the day, you just have to learn that many of the available plans out there are flexible enough to allow you to make that all important decision of investing your savings.