Offering helpful financial and lifestyle advice for everyday Canadians

ABC’s of RESPs

Originally posted on babycenter.ca

What is a RESP?

Hard to picture it now, but the baby in your arms might one day attend university or college. How on earth are you going to pay for childcare, let alone post-secondary school? One option is a program called the Registered Education Savings Plan (RESP) in Canada. It is similar to a savings account. You put money in over the years, hopefully it grows well, and when your baby enters a qualifying educational program, he can start withdrawing money from the account. You will not be taxed on the amount you contributed to his RESP, but you will have to pay taxes on the money that you earned in your plan as interest.

Why would you buy an RESP?

In order to encourage people to buy into an RESP, the Canadian government sweetens the deal. The federal government contributes to your plan through something called the Canada Education Savings Grant. You can actually receive up to $7200 from this program.

For lower income families there is an additional incentive called the Canada Learning Bond. This comes through the National Child Benefit Supplement which you may receive if your family qualifies for the family allowance. It could add up to $2,000. Residents of Alberta may qualify for an additional province-wide program called the Alberta Centennial Education Savings Plan.

How does it work?

You pay into the account (your extended family can contribute too). Your financial institution manages your money until the far off day when your baby is accepted into a qualifying university or college. At that point in time, your child will start receiving payments from the plan.

To get started, you need a SIN number and some decent research. You need to pick a bank or other financial institution that provides RESPs. Whoever you choose will manage your money for up to 36 years, so be careful. Watch for fees, limits on how much you can deposit and conditions for withdrawing your money in case your baby decides not to go to university or college. The Canadian government has a useful website with a list of questions you should ask before signing up with a particular RESP dealer.

Okay I understand what it is, but is this the best way to save for university?

So now you have some sense of what an RESP does. Should you really buy into the plan? It’s time to talk to other moms, parents with university-age kids, or your financial adviser for advice. You can start right away on our BabyCenter boards.

Where can I find more information?

Human Resources Development Canada has some more general information about RESPs here.

For excellent information related to all kinds of programs (including RESPs) for Canadians interested in post secondary education, check out this site.

The government of Canada also has an excellent advocacy site for Canadian consumers here.

[end of article]

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