Every parent wants to give their child the best education for a bright future, but it can be a big expense. The best way for parents is to have a plan ready for their child’s future. A Registered Education Savings Plan (RESP) is a smart option that parents can take to save for their child’s post-secondary education. The contribution limit to RESP is up to a maximum of $ 50,000 for each child. Not only does this money secure the child’s future but it also grows tax-free as long as it stays within the plan. The best part of RESP is that you get an additional $ 500 a year through the Canada Education Savings Grant (CESG) until the child reaches the age of 17 years, with the lifetime maximum CESG limit being $ 7,200. This makes RESP an amazing way to save up and secure the education for your child. However, you should know all about getting an RESP for your child so that you can avail all the perks it offers. Here is the process:
- Start by getting a social insurance number for the child
To begin with, you will need to get a social insurance number for the child. The number is required for setting up the RESP as well as registering for the government grant. In any case, the child will need it later too, while applying for a credit card as well as the first job.
- Know your options
There are three options available for those looking for a Registered Education Savings Plan.These are the individual, family and group savings plans. An individual savings plan can be taken up through an investment adviser at a bank, an independent financial adviser or a mutual fund sales representative. Understand the plan well before you take it as there are some that have to be started with a minimum contribution. The second option is that of a family plan which is more suitable of people with more than one child. It is a single account that enables you to get the entire benefit for the one child in the family who goes to college or university (in case the other one does not continue with post-secondary education). The group plan requires a minimum starting investment along with monthly deposits of nearly $ 100. These are pooled plans where members make individual contributions and they are all invested together. A scholarship plan dealer can help you take up this plan.
- Compare the options
The next step is to compare the options and weigh the pros and cons for each one to find the option that works best in your case. For instance, individual and family plans are ideal for parents who seek direct control over their investment. They have the choice to pick from diverse investment options such as GICs, stocks, government bonds, mutual funds and savings accounts. Group plans do not allow as much control over the investments as the plan actually decides where the money is to be invested (usually low-risk investments). Also, the contributor has to pool in specific amounts according to a predetermined schedule.
- Decide how much and how often you will contribute
The contributor decides how much he will contribute to the plan and how often he will make the deposits. Advisers recommend making maximum savings every tear as the federal government contributes 20% of your contribution, with the upper limit of $ 500 for each child. You can decide the contribution amount on the basis of your monthly budget. In case of a group plan, you can set up automatic withdrawal from the bank according to the payment schedule.
RESP makes a great option for planning the education of your child, provided that you use it wisely and according to your circumstances. Seek guidance from a professional investment adviser to take the right decision.