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. It is sponsored by the government and the Canada Customs and Revenue Agency allows it to grow free of tax.The proceeds at maturity which is paid to the student maybe taxed as his/her income.
The plans are controlled by private firms or persons who will gather the contributions and then invest the money accordingly. Total contributions can be up to $4,000 per year per beneficiary and the plan has a lifetime tax-free cap of $42,000. Students probably would like to have more plans, but the limit is strictly imposed per student.
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. This is known as CESG or Canada Education Savings Grant and any amounts contributed in are excluded from the annual ceiling for taxation purposes.
The maximum amount granted by CESG is $7,200 throughout the term of the student’s plan.Any unclaimed amount every year can accumulate and can be paid to as much as $800. In the event that the RESP will not be utilized for educational reasons, any CESG contributions of the government must be repaid.
Choosing your RESP provider
There are several financial institutions licensed to offer RESP’s but not all of them are the same. The choices are rather plenty but you have to meticulously pick the RESP provider that best satisfies your requirements. This provider will advise you about which RESP is suitable as well as on investing your money, they will administer the RESP for you and provide the funds at the time your child goes into the post-secondary discipline.
There are providers that may require you to pay a service fee or they can have limits on how frequently you may contribute. Request the provider to give you all the details concerning their fees, penalties, limits, payment options, and all others they might require before opening an RESP.
It is as well important to inquire about the different plans the provider has to offer along with the benefits and their costs. The investment plans a will be different at the same time. 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.