Rising costs of education often make university degrees an impossibility for many students. Education, unfortunately, has become a privilege. To combat this, the Canadian Government developed Registered Education Savings Plan (RESP), a unique system that allows families to save money for their children’s education in a tax-sheltered account.
The main benefit of RESP from Heritage Education Funds is that children under 18 years of age are eligible for government grants, in which the government matches 20% of the yearly contribution up to $500 for a maximum of $7,200 for an individual.
RESP has allowed many to pursue their dreams. We have discussed the two most popular schemes RESP allows in order to help you choose which one better suits your needs.
The individual plan, as the name suggests, is used for single beneficiaries. The subscriber may create an account and periodically add funds to it. The yearly contribution will be matched by the government in the form of grants as previously stated.The recipient can then use these funds for their post-secondary education. This type of scheme has a number of benefits and drawbacks.
Benefits of Individual Plan
• The child does not need to be related to the subscriber. Aunts, uncles, family friends or just a good samaritan may help secure the child’s future.
• The child can be named at any age. RESP does not have any restriction in place for the age of the beneficiary. If, for example, one child goes to grad school and the other opts not to, the subscriber may transfer the funds to the one who needs it, even if they are in their 30s.
• Contributions are not limited by age of the recipient. Thus, an adult may even set up an account for themselves. They will not be eligible for the government grants since they are over 18, but the money in it will be tax sheltered.
Drawbacks of Individual Plan
• If you have multiple children, you will need to create a separate plan for each child. A family plan is easier to manage and has less paperwork.
• If you change the beneficiary of a plan from someone related to you to someone not, the grant is no longer eligible and you will have to pay it back.
The family plan is suited to someone who wishes to name multiple beneficiaries in a single go. Similar to the individual plan, a subscriber adds funds to this account, only the account is shared by the family instead of one beneficiary.
Benefits of Family Plan
• In terms of adding multiple recipients, a family plan is more manageable. It is much simpler to add beneficiaries than it is in an individual plan.
• Withdrawal too is much more flexible. If one child from the list of beneficiaries chooses not to attend university, the others may use his share. The subscriber has the freedom to allocate funds according to need.
• Going with a family plan is potentially more cost-effective since the fees are less. however, this depends on individual providers.
Drawbacks of Family Plan
• Unlike the individual plan, non-related beneficiaries are not allowed.
• There is an age restriction for the beneficiaries since they must be under 21 at the time of being named.
• The plan, too, is age-restricted, since contributions can only be made till the beneficiary is 31.
• The grant received from the government cannot be shared.
It is important to research both schemes thoroughly before making a decision. There is a third kind of plan called Group which can be used for multiple unrelated beneficiaries but it has much stricter rules and is generally not a useful option.