Refresh on RESPs

What is an RESP?

A Registered Education Savings PlanRegistered Education Savings Plan A savings plan that helps you save for a child’s post-secondary education. The money that you save in the plan grows tax-free.+ read full definition (RESPRESP See Registered Education Savings Plan.+ read full definition) is a type of accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition that can provide taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition benefits and allow you to access Canada Education Savings Grants (CESGs). While anyone can open an RESP, the CESG is only for children 17 and younger. RESP accounts can contain many different kinds of investments.

What are the 3 types of RESPs?

Individual plan, family plan and group plan.

What is an individual plan?

Pays for the education of one beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition.  Anyone can open an individual plan and anyone can contribute to it. If the RESP account is with a financial institution, you decide how to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition your money.  You can transfer money between individual RESPs for siblings without any tax penalties, and you do not have to repay any CESGs.

What is a family plan?

Can have more than one beneficiary.  Each beneficiary must be a child, grandchild, brother or sister, and must be under 21. You decide when and how much money to put in, up to a lifetime limit of $50,000 for each beneficiary. If the RESP account is with a financial institution, you decide how to invest your money, and how to divide the funds among the beneficiaries. A family plan can offer flexibility if one or more beneficiaries do not continue with education after high school as the funds can be redirected to the child that does opt for post-secondary education.

What is a group plan?

Group plans are offered by companies registered as Scholarship PlanScholarship plan A type of Registered Education Savings Plan (RESP) that pools together the money of many investors. An investment manager invests the money for you, often in lower-risk, fixed-income investments such as bonds and GICs. Enrolment fees are often high and there may be strict rules.+ read full definition Dealers (SPDs).  SPDs are registered with securities regulators, such as the OSCOSC See Ontario Securities Commission.+ read full definition. These plans are offered by prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition. The prospectus includes a short Plan Summary.  It is important to read and understand this document before investing in a group plan.

A group plan, or scholarship plan, is the only type of RESP that requires a minimum monthly payment throughout the entire period until the plan comes due (that is usually from the time you open the plan until the child graduates from high school).

If you are not comfortable with mandatory monthly contributions in order to stay in a group plan, you may wish to discuss other RESP investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition options with a registered financial advisor at a bank or a registered investment firm.

Group plans may have higher, front loaded fees, and strict conditions.  For example, if you miss a payment, it may be considered a termination of the plan.

The money you put in to the group plan is pooled with contributions of other investors and investment decisions are made by the advisor managing the plan

If you leave the plan before it matures, you get back the money you put in, but your investment earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition go to the remaining members of the group.  If you stay in the plan until it matures, your child may shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition in the earnings of those who left the plan early.

You have 60 days to cancel plans provided by SPDs without any penalty.

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