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What to Know About Opening an RESP Account
An RESP or Registered Education Savings Plan is one of the best ways for parents in Canada to save for their child’s future education. RESP account has very many advantages, such as government grants, tax-free growth, and a chance to make sure that your child is financially ready to attend post-secondary institutions. It is, therefore, important to know the characteristics, advantages, and how to open an RESP account to maximize this financial opportunity.
How Does an RESP Work?
An RESP is a unique saving plan that has been developed to allow parents, guardians, and other relatives to save for their child’s tuition fees in post-secondary institutions. It is a type of savings account where the money deposited in it is allowed to grow without incurring taxes until when the funds are withdrawn for the purpose of paying for education, such as tuition fees, books, and accommodation. The major advantage of an RESP is that the Canadian government provides grants that go along with the contributions.
As with any investment or savings account, the moment you open an RESP, it comes with extra benefits, and this is because it is a registered program with the Canadian government. The contributions you make are not tax-deductible, however the growth in the investments and the grants received from the government are tax-sheltered until upon the time of withdrawal.
Once your child registers for a Qualifying Post-Secondary Education program, you may then start taking money out of the RESP to finance education expenses. These withdrawals are called Educational Assistance Payments (EAPs) and are also taxed, but since the money is paid out to the student who probably has less income, the tax impact is typically minimal.
How to Open an RESP and Apply for Benefits
Having an RESP is considered one of the most effective ways that can be taken towards ensuring lower expenses for your child’s education. The government offers incentives such as the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) for your child’s education, making the RESPs suitable for planning, saving, and facilitating the attainment of finances required to fund a child’s post-secondary education.
Learning the procedure involved in opening an RESP and the steps to follow when applying for these grants will enable one to optimize the amount of money that one’s family can access for their education needs. Below is a step-by-step guide on how to open an RESP and get all the distinct benefits.
i. Make sure that the Beneficiary has a Social Insurance Number (SIN)
Before you can open an RESP, the main preliminary requirement is to get a Social Insurance Number (SIN) for the child or an adult (the beneficiary) who will benefit from the RESP. You will also need one for yourself if you don’t have one as of now. It is mandatory to fill the SIN as and when needed for monitoring contributions and payments from government benefits like the Canada Education Savings Grant and Canada Learning Bond.
- Why It’s Important
If one doesn’t have a SIN, he or she cannot open an RESP or even apply for the benefits related to it.
- How to Get a SIN
There are a number of ways through which one can apply for an SIN through Service Canada, such as through the Internet, by mail, or even in person.
ii. Select a Respective RESP Provider (Promoter)
After getting the SIN, it is time to select the most suitable RESP provider, which is also referred to as the promoter. It is offered by many financial-related institutions, including banks and credit unions, certified financial planners, as well as group plan dealers. RESP promoters are not equal in what they offer in terms of benefits and the investment plans made available, and this means that evaluating through comparison is necessary.
- What to Consider
Inquire your RESP provider whether they are providing all the available ones, such as the CESG, CLB, and any other provincial grants, such as the Columbia Training and Education Savings Grant (BCTESG). It is important to ensure that the fees of the provider, the investment options offered, and the flexibility regarding your options fit your financial plan.
- Types of RESP Providers
Most RESP promoters provide convenient access to open and manage your account through an online system, by phone, or in person.
iii. Open RESP and name the beneficiary
Once the right RESP promoter has been chosen, it is now possible to open an RESP account. It is the person that you are saving for, be it your child, someone’s child, or even yourself, and their name will appear in the RESP as the beneficiary. The beneficiary can also be another adult if he or she intends to go back to school.
- How to Open the Account
It is possible to apply for an RESP online or through phone or traditional mail depending on the options of the account provider. Your provider will help you fill out the form and review that you have identified the beneficiary and the right type of RESP, whether it is the Family, Individual or Group Plan.
iv. Apply for Government Benefits
One of the most valuable benefits of an RESP is that it provides an opportunity for government grants & bonds that enhance savings. When you open the RESP, your RESP provider will assist you in applying for these benefits so that you do not miss out on any financial support.
- Canada Education Savings Grant (CESG)
This grant is equivalent to 20% of your annual funding up to $500 annually, with a maximum funded amount of $7,200 per beneficiary in his or her lifetime.
- Canada Learning Bond (CLB)
Families with lower income can receive up to $2,000 per year with no co-contribution required from the family.
- Provincial Benefits
There are other provincial grants that may be available depending on the province in which a person lives, like in British Columbia, the BCTESG or the Québec Education Savings Incentive (QESI).
Pro Tip
Check with your RESP provider and ensure that they assist you in applying for all benefits available to you, such as any provincial grants that could add to your RESP savings.
v. Consider Making Contributions to the RESP
Although you do not have to contribute in order to receive the CLB, contributing to your RESP is crucial to qualify for the CESG and also to ensure that you get the highest returns on your savings in the long run. The advantage of a consistent contribution is that your RESP is constantly growing, and your child can qualify for the full range of government grants.
- How Contributions Work
What you should know is that with every dollar that you invest in the RESP, you could easily be matched by the government up to the predetermined yearly CESG limits. This also makes it a form of motivation where one feels encouraged to make constant contributions, even if it’s a small amount at a time.
- Lifetime Contribution Limits
Note that each beneficiary is allowed a lifetime contribution limit of a maximum of $50, 000.
- Check Deposits and look for Benefits
The next thing that an applicant has to do after applying for benefits is to make sure that the money is directly deposited into their RESP account. Government benefits such as the CESG are usually paid within 65 days of your eligible contribution once the application has been approved. It is important to remember that it may take several weeks for the benefits to be credited to your account due to processing.
- How to Track
You should keep an eye on your RESP account to see the deposits, the growth of your contribution, and the government’s benefits.
- What to Expect
It is important to note that the CESG and other provincial benefits will be directly credited into your RESP once the conditions of eligibility have been met; this, therefore, means that it is important to follow up on the deposits with the provider of the RESP.
Why Opening an RESP is a Wise Decision
The steps of opening an RESP are not a mere depositing of money but a strategic investment toward your child’s future endeavors. An RESP is a great investment that offers tax-sheltered growth, government grants, and bonds that help you save for your child’s future education. With the help of this article, one can learn all the necessary information about how to open an RESP and apply for the benefits to be confident in the usage of this financial tool. By reviewing the step-by-step process of opening an RESP and applying for the benefits, you will be well prepared to maximize this valuable savings plan.
By choosing the right RESP and maximizing the use of government grants, the cost of future education can be greatly minimized, giving your child the best start in life.