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There’s no doubt about it, understanding all the
aspects of Registered Education Savings Plans can be hard. To have an RESP
that does what it’s supposed to, these four people and organizations need
to work together:
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The plan-holder, |
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The plan-holder’s financial advisor,
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The government, |
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The company that sells the plan
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Despite the complexity, RESPs are probably the best
way to save for your children’s post-secondary education. Why?
There are two basic reasons:
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Grants from the government – Yes – FREE
money from the government to help put your kids through school, and
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The power of investment growth over long periods
of time. |
A few facts about RESPs:
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You contribute money to a savings plan and the
federal government adds a grant of 20% of what you put in, up to $400
per year for each child. |
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The maximum you can contribute per year is $4000
per child. The government gives the grant on the first $2000.
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If you miss a year or two, or don’t put in as
much as you want, you can catch-up on your contributions (and the
corresponding grants) later. |
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Single plans can stay open for 25 years - 21
years paying in to save and four years paying out to fund an
education. Family plans can be open 25 years, but you can only
contribute to age 21 of the beneficiary or 21 years, whichever comes
first. |
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The government grant is available until the end
of the year a child turns 17, making the lifetime maximum $7200.
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Your child is taxed on the earnings and grant
taken from the plan for school. Generally, with all the deductions
available to students, the money will be taxed at a very low level or
not at all. |
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If your child doesn’t go to a post-secondary
school, you have some attractive options for what you do with the
investment earnings. |
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A Social Insurance Number is required for each
child you are saving for at the time the plan is established in order
to register the plan with the government. |
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