RESP Primer – Just The Rules You Need To Know
It costs a lot of money to put a child through University these days and Registered Education Savings Plans offer one of the best ways to save for a child’s education. In today’s post, Mike Holman, the blogger behind the Money Smarts Blog and author of The RESP Book (available on Amazon) explains the basics of RESPs.
RESPs (Registered Educational Savings Plans) have been around for a long time. Most people don’t have the slightest clue how these accounts work until they have kids – at which point, they need a crash course. This article is that course.
What is an RESP?
RESPs are special investment accounts where the government will deposit a 20% grant (or more) based on the amount of your contributions. RESPs are intended to be used for educational purposes and there could be penalties if the child doesn’t go to post-secondary education. RESP accounts are tax-sheltered so all earnings inside the account are not taxed. Any investments that are eligible for an RRSP are also eligible for an RESP. GICs, stocks, bonds, ETFs are all eligible.
Where do you sign up for an RESP?
Most financial institutions and financial advisors offer RESPs, but the easiest RESP solution is to visit your local bank branch and set one up. Bring your SIN card as well as the child’s SIN card and birth certificate.
Be careful of scholarship or pooled RESP plans. These are typically sold by salespersons who earn large commissions. If someone calls you or is willing to come to your house to discuss an RESP, you can be sure it’s a scholarship RESP. These have high fees and restrictive rules.
RESP Account rules
- Subscriber – The person who sets up the RESP account. There can be one or two subscribers. The subscriber does not have to be related to the child.
- Beneficiary – Any children named to the account who will eventually receive payments from the RESP.
There are two types of RESP accounts – individual and family plans.
An individual plan means there is only one beneficiary on the account. A family plan means there can be more than one beneficiary. Family plans make it easier to share RESP money between siblings or even cousins. Some RESP accounts have annual fees, so reducing the number of accounts can save money.