Knowing about RESPs is essential to getting the most out of such plans.
Registered Education Savings Plans from Heritage RESP are savings plans that are meant to pay for the educational costs of children after high school. They are typically opened by parents for the use of their children. RESPs may also be opened by grandparents, other relatives, or even friends of the children or a child care organization.
The children that the plans benefit are referred to as beneficiaries. Those that open the plan and contribute to it for the duration of the plan are referred to as subscribers.
Although the beneficiaries of RESPs are usually the children of plan subscribers, they may also be other adults or even the subscriber himself.
Payments to beneficiaries usually begin when the child enrolls in post-secondary education. These usually come in the form of educational assistance payments or EAPs.
EAPs themselves may consist solely of investment earnings from subscriber contributions, or they may be a combination of personal contributions and funds from government grants.
Here are some of the most important things to know about RESPs:
Funds saved up in RESPs are tax free. As long as the funds remain in the plan, they are not subject to taxes.
If the plan beneficiary is aged 17 years old or younger, the federal government also contributes to the fund. Government contributions come in the form of grants or bonds. In certain provinces, the local government may also contribute funds into Heritage RESPs.
Some plans allow subscribers to place money whenever they want, in whatever amount. These are typically limited to a maximum of $50,000 for the lifetime of the beneficiary. However, there are some plans that require subscribers to make contributions monthly or annually.
Although contributions are not tax deductible, the funds can be withdrawn from the RESP at any time for whatever reason. In these instances, the funds will not be subject to taxes.
RESPs can also be utilized as investment vehicles. There are actually a wide range of investment options available for RESP subscribers. Among the available options are:
• Mutual funds
Depending on the type of RESP you sign up for, you may have a choice in how you can invest the funds. With some plans, the decision on where to invest your money is made for you.
RESP beneficiaries can use the money in the plan when they enroll in college or university. The funds may also be used to pay for certain approved education programs.
RESP typically remain open for as long as 36 years. In some cases, they may even be allowed to remain open for as long as 40 years, subject to eligibility for disability tax credit.
RESPs are typically offered by financial institutions such as banks, credit unions, and investment firms, or scholarship plan dealers.