A Registered Education Savings Plan (RESP) is known as a dedicated education saving plan which helps to save for your child’s after-school education. An RESP is quite suitable for children. When your children get into higher-secondary and university education they can start receiving payments from the RESP account. It is known as educational Assistance Payments or EAPs. The person who receives the payment is known as the beneficiary and the person who opens the RESP is known as a subscriber.
How Does An RESP Work? – Step By Step Information
With an RESP, your savings grow tax-free and there is no tax on the investment earnings. And if you save for your child under the age of 17 then the Government also offers some money into your RESP which is known as a grant. With an RESP, you can save your money for future up to a lifetime and a maximum of $50,000 per child. In some plans, you have to make a monthly and an annual contribution as per the requirement. An RESP can remain open for 36 years.
In this scheme, the subscriber who makes the payment and open RESP, can’t withhold their contribution from their income on the basis of income tax and tax return benefits. And the promoters who allow them to open an RESP, pay the contribution to the beneficiaries after a certain age during the time of higher education. The payment which is given to them is known as Educational Assistance payments. There is a provision to pay the contribution to the subscribers as well if not paid to a specific beneficiary at the end of the contract.
The registered education savings plan contract by the Canada Revenue Agency is known as RESP. The limit of it is set by the Income Tax Act Canada. And that amount only is contributed to a single beneficiary.
Let’s have an overview of Registered Education Saving Plan and know how it works
- The parents or family members of a child enter into the RESp plan as a subscriber. They make a contract with a bank or any financial institution along with one or more beneficiaries under a specific category.
- There are usually three plans under an RESP. They are the individual plans, family plans, and group plans.
- The parents or subscribers make a contribution to the specific RESP, and the respective government pays some grant if applicable to the RESP. The grants can be the Canada Learning Bond (CLB) or Canada Education Saving Grant (CESG).
- The promoters are usually banks, union bodies or some financial authorities. They administer the process and check the payments to be made in proper time. They also check the rules and regulations of a specific RESP.
The subscribers can get tax-free contributions by the promoters. And at the time of requirement and higher studies of the beneficiaries the promoters assist the by paying the contribution along with the grant.
They can also make the accumulated income payments. Therefore the promoters play a vital role in the higher education of the respective beneficiaries by paying them in the meantime of their studies.