The cost of post-secondary education in the United States is prohibitive for most families, and this is especially true for those who are not particularly rich. Even if your child doesn’t end up in a four-year college or university, if they do and you haven’t budgeted for it, you could find yourself with a big financial burden. At a time when most families are hoping to finally secure some financial stability, this could occur.
If you have children who you believe may be interested in pursuing post-secondary education, a Registered Education Savings Plan (RESP) is essential to your financial well-being. RESPs (Registered Education Savings Plans) are backed by the government and are therefore exempt from federal income tax. The student may be taxed on the money he or she receives at the end of the plan’s term.
Private firms and individuals (Promoter) are in charge of administering the schemes and collecting and investing the contributions. A lifetime contribution cap of $42,000 applies to all beneficiaries (students) and can be contributed tax-free up to $4,000 per year per beneficiary (student). There is no limit to the number of plans a student may have, but there is one plan per student.
There is a significant advantage to using the RESPs because the government will add 20% to the first $2,000 per calendar year ($400) up to and including their 17th birthday. You can get tax-free money for your education by contributing to the Canada Education Savings Grant (CESG).
Over the course of the plan’s existence, a student may receive a total of $7200 in CESG benefits. The amount of CESG that isn’t claimed each year can be reimbursed up to $800 if it hasn’t been claimed before. RESP contributions will have to be reimbursed if they aren’t used for educational purposes.
An SIN (Social Insurance Number) must be submitted to the promoter at the beginning of the plan in order for a student to apply. An SIN will also be requested from each individual who contributes money to the fund.
RESP Plan Types
In general, there are three kinds of plans:
Those who are not related to the beneficiary, such as grandparents or godparents, can make donations at any time and for any amount they want.
As long as the person/s providing the donations are blood relations or adopted, there can be one or many beneficiaries. For the most part, there are no limits on when and how much can be paid in a transaction (apart from the tax implications of over subscribing).
These plans are typically given by foundations, which establish the amount of money that is paid in and the time frame in which it is paid out. Each age group will have a specific plan, and each member will contribute to the total.. Before signing on the dotted line, it’s important to properly examine the plan’s terms and conditions.