How RESPs Work and How to Make Them Work for You

As anyone with children probably already knows, the cost of a university education has increased by more than 100 percent since the turn of the millennium. You could end up paying $100,000 or more to get that degree. To help make college possible and affordable for your child, the Canadian government has made provisions that make saving in advance for education easier and more effective. For more info about heritage resp scam, follow the link. The key is a RESP.

What does that mean? It stands for Registered Education Savings Plan and it's a type of savings account set up to help parents save money without paying extra tax on that savings. You can get a RESP through a bank or other financial institution or through a private company. There are many reasons to choose them over other savings tools.

RESPs are superior to regular savings accounts for several reasons. Interest on a savings account is taxed as interest income, but the interest that accrues on a RESP is not. Instead, the RESP gets taxed when it is paid out to the beneficiary. Read More about registered education savings plan. Since the beneficiary will be a student, and eligible for several tax deductions, the tax rate can become effectively zero percent.

Setting up a RESP also makes you eligible for government contributions to your account. All RESP holders should apply for the Canada Education Savings Grant. With this grant, the government contributes a percentage of your own contribution on top of what you put in, up to a maximum of 7,200 dollars over the life of the RESP. As an incentive to low income families, the Canada Learning Bond adds even more to your RESP for qualified applicants. These funds cover the cost of establishing a RESP, as well as an initial contribution of 500 dollars, and yearly contributions of 100 dollars more.

RESPs have very specific rules that vary by provider, so be sure to read all of the materials presented to you before agreeing to set up an account with anyone. RESPs can have penalties for early withdrawal as they are long-term investments that are not meant to be drawn from ahead of schedule. Your RESP may involve a specific schedule of deposits that you need to follow. If you know that you will be unable to contribute to the RESP on the usual schedule, it is best to let your provider know as soon as possible, or you could face penalties and fines for failing to maintain the deposit schedule.

There are also specific rules about who is eligible to receive funds from a RESP and when. For example, children who fail to complete the requisite number of school hours or to attend post-secondary schools at all, may not be eligible to collect some or all of the money saved for them. Get to know more about the heritage education funds scam. For those who understand and obey the rules, though, a RESP can go a long way toward making sure your child's education is paid for.