July 2018

11- Jul2018
Posted By: Terrance

Demystifying Registered Education Savings Plans or RESPs

Are you interested in RESPs or registered education savings plans? Are you a resident of Canada and have a child below the age of seventeen?

If you answered yes any of the two previous questions, you’ve reached the right page. The Heritage Education Funds is one of the best ways to assure your child’s future education and the best time to get started on saving for your child’s college fund is right now.

The Canadian government sponsors part of the contributions to RESPs and the payments made by the government are computed based on the economic status of the child’s family.

Obviously, those who are earning lower than ideal will be receiving more assistance from the government, but still, only to a certain extent. The maximum contribution of the Canadian government to individual savings plans for education is $7,200 as of this article’s writing.

Understand EAPs

EAPs or educational assistance payments are basically withdrawals arising from fulfilling your role as the subscriber of the savings plan. In college, the financial institution or scholarship plan dealer that holds your child’s educational savings plan will mete out educational assistance payments.

And contrary to what people believe, EAPs can be claimed by the beneficiary in secondary school, not just in college or when the beneficiary applies for a valid program in the university.

Limits to Contributions
You can only contribute a maximum of $50,000 to your child’s registered education savings plan. However, this does not mean that you cannot open more than one savings plan for your child’s future education. You can open an unlimited number of plans and spread out your contributions.

Obviously, there will be some differences in the private policies of the institutions or dealers that are offering such savings plans, so read, read, and read before signing up. You still cannot exceed the $50,000 ceiling for contributions even if you have more than one educational plan open for your child.

What If Your Child Doesn’t Study After High School?

The situation where a beneficiary does not pursue a degree after secondary school is common. What happens to an RESP in this situation? Canadian law states that the subscriber can withdraw money from the savings plan at any time. However, the Canadian government also matches contributions to a certain extent.

When does the government pull out its contributions? Current policy states that if the beneficiary does not pursue a post-secondary degree training program 36 years after his/her completion of secondary school, the Canadian government reserves the right to request the grant money to be returned to the national coffers.

If you withdraw money from an Heritage RESP and you do not use it for your child’s college education, the government will tax you (the money will be subsumed under “income tax”) and you will pay the government a 20% penalty based on how much you withdrew from the RESP.

All RESPs in Canada are government-sponsored, so there is no escaping this clause. If you want a savings plan that you can use for business and other purposes, there are other financial instruments and investment programs for that. Don’t use an RESP.