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What is The Registered Education Saving Plan RESP?


Child studying diligently at a table, with books and study materials, highlighting the importance of a Registered Education Savings Plan (RESP) for securing a child's educational future.

Saving wisely for your child's education could prove daunting, especially for newcomers. However, asking a financial advisor about how to save for your child's education can save you a lot of time and effort. It’s usually a struggle to save tuition fees even for Canadian locals, but that is fast changing with the development of special plans tailored to help you easily save money for your child's education.


In this blog, we will take an in-depth look at one of those special plans; the Registered Education Saving Plan RESP.



The Registered Education Savings Plan RESP is a tax-deferred long-term savings plan designed to help individuals or families save for a child's education after high school. RESPs can be used for educational pursuits after high school, like trade schools, apprenticeships, colleges, and universities right from birth.


RESPs are also tax-deferred, given that the money remains in the savings plan. This means that the investment income you earn with the account accumulates and the tax on it is deferred until it’s time to withdraw the savings. At the time of withdrawal, government grants components, and the returns that have been earned are then taxed. Seeing an Alberta financial advisor can help you decide if this saving plan is perfect for you.


Who can Participate in a Registered Education Savings Plan


A RESP can consist of three major people:


  • The Subscriber - This is the person (a parent, grandparent, or caregiver) who opens the RESP and makes the payments.

  • The Beneficiary - This is the individual or people whose name is on the RESP and who is designated to receive the funds in the future.

  • The Promoter - This could be an agency or the financial institution responsible for handling the RESP and paying out the funds when it is time for the beneficiary to attend post-high school. An Edmonton financial planner can walk you through the intricacies of setting up an RESP.

Pros of RESP


Having a RESP can be beneficial in many ways. From providing you with a flexible and efficient saving option to helping you save on tax, let’s dive into some of the details!


Tax Benefits


RESP is a tax-deferred saving plan, which implies that the money earned on your investments is not taxed until withdrawn. In this case, it can be withdrawn by the beneficiary, and it may incur a lesser tax because the child is going to post secondary at the time of the redemption, and they usually do not have a lot of other income during this time. Often the beneficiary is in a low tax bracket at the time of the redemption which results in the low tax on the growth of the plan. A professional Edmonton financial planner can walk you through this process.


Government grants


Grants such as Canada Education Savings Grants (CESG) and Canada Learning Bond (CLB) have been put up to serve as a contribution to RESP, significantly raising savings for education.


Long-Term Savings and Planning


A RESP can be opened from the birth of the beneficiary and maintained for over 35 years to accommodate their education journey. The beneficiary can make the withdrawal when they are ready to further their education post-high school.


Flexibility


The RESP has a variety of options that have been tailored to satisfy different needs and for an unlimited number of beneficiaries. Talk to a financial advisor in Alberta to learn the available options that best suit your needs.


Types of RESP


The most common types of RESPs are the Individual RESP, and the Family RESP.


Individual RESPs are also known as the Nonfamily plan. It is a plan for only one beneficiary, that is a plan for only one child. Here, you do not necessarily need to be related to the beneficiary. You can open an individual RESP for yourself as an adult or for any other adult.


On the other hand, family RESP is an option suitable for families with more than one child, as this plan allows for more than one beneficiary. However, in this plan, beneficiaries are required to be related to the subscriber by blood or by adoption. Opening a RESP is a great financial planning move, and the benefits can be reaped in years to come.


How to Open a RESP


Opening a RESP is a straightforward process, all you need to do is follow these steps with a financial planner in Edmonton.


  • Possess a valid Social Insurance Number SIN and Acquire or get one for the beneficiary.

  • Select a RESP handler that suits your taste and ticks your box.

  • Open the RESP with the financial institution you have selected and name your beneficiary.

  • Apply for benefits which are usually in the form of government grants.

  • Commence payment to the RESP to be able to attract benefits.

  • Look out for benefits.


Withdrawing from your RESP


Withdrawing funds from RESP is not that much of a complicated process. You have to reach out to the RESP provider, with the beneficiary's valid proof of enrollment in a recognized post-high school institution, full-time or part-time. Receipts indicating school purchases may also be demanded to prove that the money is spent as intended. Once the claim is verified, the fund which is called Education Assistance Payment EAP will be issued.


RESP Payments and Contribution Limit


The limits and schedules often vary from one provider to the other. Although there is no limit to the contributions that can be made in a year, there's a cap of $ 50,000-lifetime limit for all RESPs for a beneficiary.


In a case where the RESP is not used for education, there may be some choices to explore;


  • Opt for a replacement or change of the beneficiary

  • Transfer the contribution to another savings plan

  • Maintain the RESP, and keep it open with the funds in it for future study purposes

  • Close the RESP


RESP Maturity


Once a RESP is opened, contributions can go into it for up to 31 years, after which you would have up to the 35th year (or 40th year for some specified plans) to access and use the funds before the RESP expires.


If you decide to close the RESP, any savings or contribution left in the fund will be returned to the government of Canada or returned to the subscriber. It’s important to note that the returned contribution will not be taxed.


A RESP can be opened for up to 35 years to provide enough time for the beneficiary as they may not want to go straight to university immediately after high school. For more information about how RESPs work, contact us to speak to one of our seasoned financial advisors.




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