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What Is The Registered Education Savings Plan (RESP)?

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In Canada, a registered education savings plan (RESP) is an investment plan that permits parents to put money aside for their children’s post-secondary education. Continue reading to learn more about RESP.

Registered Education Savings Plan Canada

Source: Freepik

Education is the key to unlock a bright future for young minds in the long run. A sound education requires a proper and strategized planning of financial resources and investments.  

The Canadian government manages the Registered Education Savings Plan program (RESP). It creates early savings of financial resources, later used for the higher education of children. The RESP plan is all about integrating savings for parents. We list here a short guide on its types and benefits.

The Registered Education Savings Plan

The RESP plan is an investment under the Canadian government, where investing a certain amount for specific years is tax-free. The RESP plan aims to save for a child’s secondary education. The parents or respective guardians can start saving and investing at an early age for their child. 

Types of RESP

We can broadly categorize the RESP plans into two types. 

1. An Individual RESP Plan

The plan allows only one selected beneficiary to get the benefits of this program. Any parent can open this account, but one chosen beneficiary can enjoy the advances of the plan. 

2. A Family RESP Plan

Unlike the individual RESP plan, the family RESP plan has a policy of over one beneficiary. However, the only condition remains that each beneficiary should be connected to the other in any form of family relation. This plan is brilliant for vast families with many family members. 

3. A Group RESP Plan

A group RESP plan can be operated and accessed by a group benefitting from one beneficiary. Under this plan, many members can come together and contribute to one child to get its benefit in the long run. 

Types of RESP
Source: Freepik

How to Avail Monetary Benefits from the RESP Plan?

After a specific timeframe of depositing money is over, an account holder has two options to withdraw the amount and avail benefits. They are: 

1. Education Assistance Payments Option (EAP)

The plan entitles an account holder to withdraw all the government-related gains and grants or any other form of investments. However, you can only withdraw the amount after paying the rate of tax levied on it. 

2. Post-Secondary Education payment option (PSE)

Under this option, an account holder can withdraw the amounts deposited for a child’s education regardless of any tax payment. 

Benefits of the RESP

1. Tax saving option

As discussed above, RESP plans provide investment options without tax hassles, where withdrawal options are tax-free. 

2. Money investor plan

The RESP plan helps an investor’s money to grow with time, allowing better and profitable returns. 

3. Stress-busting option

Secondary education is not cheap and demands a costly investment from parents in Canada. The RESP plan acts as a stress buster by its saving plans and programs.  

To sum up, a solid education demands planned investments in Canada. The RESP plan is a strategized way of saving and investing, both at the same time. 

References:
https://www.canada.ca/en/services/benefits/education/education-savings/resp.html
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