If you are trying to come up with the best way to save money for your child’s post-secondary studies, don’t rule out the RESP. The Registered Education Savings Plan (heritage RESP) is an investment vehicle that many parents actually prefer, and the reasons range from the grants that it receives to its ability to generate tax-deferred income. However, it’s still important to be informed about these financial decisions, and there several important things to know about RESPs.
1. It’s Often Better Than Anything Else
The RESP is designed specifically for saving for a child’s post-secondary education, and they are equipped with a few different features that make this easier. Typically, there are no annual contributions limits, and there is an excellent potential to receive government grants. Lower-income families can also benefit from additional grants.
2. Not All Providers Have the Same Terms
It’s important to do your research before committing to an heritage RESP provider, and this is because not all of them offer the same terms. You will want to learn about any existing fees, such as investment fees, withdrawment penalties, and even start-up fees. You may also run into different minimum contribution requirements, in which case you would want to make sure that you can make the contribution regularly. Other plans may not have a minimum.
3. Not All Providers Pay the QESI
The Québec Education Savings Incentive (QESI) is an additional financial incentive that Québec offers, but some providers don’t give you this opportunity. You can find a list somewhere that tells you which RESP providers participate in the QESI, and choosing one that does can get you a better return on your Registered Education Savings Plan.
4. There Are Tax Benefits to Contributing
The funds from RESPs aren’t calculated in a student’s income that is linked to loans and financial assistance. The heritage RESP amounts that were received from grants and income earned are taxable, and students typically pay little to no income tax on most of the funds.
5. Different RESPs Will Serve Different Purposes
It’s also true that different RESPs will suit different needs. First, there are three types of savings plans, namely family, individual, and group. However, those who benefit the most from a family plan may not benefit as much from a group plan. Each plan also has different requirements. For example, with a family plan, the subscriber is required to have a blood relationship with or be an adoptive parent of the recipient.
Group plans tend to be more restrictive and may come with more fees and interests. They require you to make contributions based on your agreement with the provider, and the contributions are pooled with other investors.
6. You Don’t Lose the RESP if the Child Does Not Pursue Post-Secondary Studies
Some people assume that the heritage RESP is lost if the child chooses not to pursue a post-secondary education, but the truth is that you have a few options. You will be able to keep much of the earnings. However, if the child does not use the funds for post-secondary studies, there will typically be greater taxes, and you are also required to repay the grants.