One of the biggest costs for parents in North America is the cost of post-secondary education. Of course, if you are wealthy this will not be a concern, but for average parents it is a major source of worry. Obviously, there are some children who decide that they do not want to attend a college or university.
However, if your children do want to go to college and you are not prepared, you could find yourself facing a very large financial obligation. This typically occurs when parents are expecting to have some financial relief with their expenses.
What Is A Registered Education Savings Plan?
Also known as RESP, this type of plan is critical to your financial future and the health of your finances if you have children who have expressed an interest in attending a post-secondary school. This is a program that is sponsored by the government (Revenue Agency and Canada Customs). The savings plan can grow at a tax free level. However, money that is paid from the savings plan can be taxed as a source of income for the child.
These plans are administered by a Promoter. The Promoter is typically a private person or company. This entity will collect all monies and invest them appropriately. Each student or beneficiary can have up to $4000 contributed to their savings plan annually. There is also a limit of $42,000. Although a student can have more than one savings plan, the limits are still in effect for each plan.
In order to apply, a child has to be a Canadian resident and have a Social Insurance Number (SIN). This information has to be provided to the Promoter before the savings plan is created.
The Different Types Of RESPs
There are several different types of Retirement Savings Plans. The first type of plan is known as the Non-Family plan. This plan allows only one beneficiary, but anyone can contribute to the plan at any amount they want to pay.
The next type of plan is the Family plan. With this type of plan, there can be more than one beneficiary as long as the beneficiaries are blood relatives or have been adopted by the persons who are making the contributions. There are no other restrictions on the plan as far as how much is paid and when it is paid.
The final type of plan is the Group plan. This is usually offered by foundations who determine how much is paid and when it is paid.
A Retirement Savings Plan is a great way to financially secure your child’s educational future. It provides families with the financial cushion needed for post-secondary educational opportunities.