A Registered Education Saving Plan (RESP) is registered savings account with the Canadian government especially designed to save for a child’s post-secondary education. The savings you make in an RESP is tax-sheltered. Education is getting expensive day by day and it is difficult to pay for post-secondary education from your pocket or savings. The only way left is to take education loans and pay interest for years. To avoid loans or debt to pay for your child’s education, RESP is the best solution.
RESP is an excellent way of saving a sufficient amount in advance and ensuring quality education for your child. If you start an RESP account at right time, it can help you save enough for your child’s post-secondary education expenses. To promote saving Canadian government also contribute to your RESP account in the form of a grant. The amount of the grant will depend upon the contribution you make.
Why RESP Account is Needed?
There are other registered investment accounts that you can go for if you want to save for the future, but RESP offers some additional benefits that no other saving account gives.
Benefits offered by RESP are:
- If you are a Canadian resident or a permanent citizen, you can open an RESP account.
- Having a blood relation with the child is not compulsory for opening an RESP account.
- Offers return much higher as compared to regular savings accounts in Canada.
- A tax-free amount is received at the time of maturity.
- RESP offers a special feature of one-time grant that the Canadian government contribute from their end to every RESP account.
- The contribution limit of government grants is up to $7200.
- The amount received from an RESP is for expenditure made on post-secondary education of the recipient child.
- There is no annual contributing limit to an RESP account.
- You can save a maximum up to $50,000 in an RESP account.
Important Points to Consider
While opening an RESP account you need to keep in mind some important points to avoid financial losses and they are.
- You can only spend the received amount on post-secondary education of the recipient, If not then the government will retrieve the grant amount.
- You have to spend the amount till the RESP account completes 36 years otherwise grant will be taken back by the government.
- In case you withdraw an amount from RESP and use it for some other purpose then you have to pay almost 20% out of the remaining amount in the account as a penalty.
RESP Account Types
There are different types of RESP accounts available. You have to select the most suitable type depending on the way you want to save for your child’s education.
- Individual RESP: This type of RESP account allows an individual to save for the education of one child. The child and contributor don't need to be related by blood.
- Family RESP: One contributor can save for the education of more than one child in this type of RESP account. The only condition is that all the children must belong to the same family and the person contributing must be rated by blood with the recipients.
- Group RESP: More than one contributor can come together and save for the education of a single child. It is not compulsory that contributors have to be related by blood to the recipient.
It does not matter what type of account you are opening, every RESP account receives the government grant. The amount of grant varies from one RESP account to another depending upon the contribution you have made. There are different types of RESP grants available, some falls under the federal government some come under the provincial government.
One of the grants that contribute to the majority of the RESP accounts is:
Canada Education Saving Grant (CESG):
- CESG disbursement is the responsibility of the federal government.
- The limit for the CESG grant is 20% of the contribution you have made or a maximum of $500 per year.
- Through the CESG grant an RESP account can get a maximum of upto $7200.
There are other grants as well that are given to RESP accounts falling to specific categories and meeting certain criteria. To know more about RESP, call our advisors now!
Gujarat Insurance specializes in financial services and our financial experts know how to take maximum advantage of your contributions. We guide you to strategize your contribution to receive maximum possible government grant. We help you get a clear understanding of terms and conditions of RESP account and how you can avail maximum benefit out of it. Our team is always accessible. We prioritize our clients needs and solutions we give ensure their financial well-being.