Understanding group RESPs

Group RESPs are sold only by 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. Each group plan is different and has its own rules. These rules are described in the plan’s 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 — a legal document that describes how the plan works.

How group plans work

When you join a group plan (sometimes called a pooled plan), you agree to buy a set number of plan units. These units represent your 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 of the plan. The maturity dateMaturity date The date when an investment becomes due. On that date, you get your money back without any penalty. Any interest payments stop.+ read full definition of the plan is based on your child’s birth date.

If you leave the plan before it matures, you get back the money you put in, but your investment earnings go to the remaining members of the group. If you stay in the plan until it matures, your child may share in the earnings of those who left the plan early.

Scholarship plan dealers are required to provide a prospectus that includes a short Plan Summary with the information you need. Be sure to read and understand this document.

Making contributions

You have to make regular contributions according to a set schedule. Here’s what happens if you miss a contributionContribution Money that you put into a savings or investment plan.+ read full definition:

You may have to pay a penalty and interest on the missed contribution to stay in the plan.
Your 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 may go into default and your plan may be terminated.

Make your contributions on time. If you don’t, your plan may be terminated and you may have to give up some, or even all, of your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition 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.

How your money is invested

The plan manager invests your savings and government grants along with money from other plan members. Your money is usually invested in lower-risk investments with fixed returns. Examples: bonds, GICs, mortgages.

The sales fees you pay when you join the plan decrease the earning power of your investment in the first few years. That’s because these fees are usually taken from your early contributions.

What happens when the plan matures

Your child shares in the pooled earnings of investors with children the same age. How much money your child receives depends on:

  • how much is in the group account, and
  • the number of children in the group who will be starting post-secondary education.

If your child doesn’t begin post-secondary education at the same time as the rest of the group, the earnings you receive from the plan may be affected.

Group plans often have additional rules about how much and how often your child can take Educational Assistance Payments (EAPs) and which education programs are eligible. Know the rules before you open a group plan.

If you want to leave a group plan before it matures

If you change your mind and cancel within the first 60 days, you get all your money back and there are no costs.

If you cancel after 60 days:

  • You get your contributions back, less the fees. The amount you get back is always less than the money you put in.
  • You may also have to forfeit your earnings if you cancel the plan. Your earnings remain in the plan and are divided among the other members of the group when the plan matures.
  • You have to give any government grants back to the government.
  • The plan may impose other restrictions and penalties. These will be outlined in the plan prospectus.
Warning

If you cancel your plan in the first few years, you’ll get back much less than you put in. This is because sales charges are deducted from your early contributions, so less of your money is invested.

Caution

You have 60 days to cancel plans provided by scholarship plan dealers without any penalty. Be sure to read and understand the rules outlined in the short Plan Summary provided in the plan prospectus.

Take action

Shop around before you buy. Different RESPRESP See Registered Education Savings Plan.+ read full definition providers and plans have different rules and fees.

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