In our technology-driven world, continued education after secondary school is important. Going on to college or at least into an apprentice position is the best way to secure an education that will ensure you a job that will support you and your family. However, the cost of continued education is often the first reason a student gives when asked why they have chosen not to pursue a quality education. Canada has put many plans and options into place to remove the financial obstacles that students are facing. In this article, we will address one such plan.
RESP Canada is short for “Registered Education Savings Plan”. The Canadian government put this program in effect in 1972 as a way to help citizens save money for post-secondary education. The parents, grandparents or any adult that wants to help a child with their education can go into a bank or credit union and set up a RESP account. The family or friend can then deposit money into the account which will be saved toward the child’s education when it is needed.
The best thing about RESP Canada is that for a person who is involved in an RESP, there are no federal taxes due. Due to the low income that most students earn while they are in school, they rarely pay taxes when they make a withdrawal during their college years. This is why we say RESP funds are virtually tax-free.
How Does RESP Work?
The resident has to fill a form either through a bank or any mutual funding agency. Some plans require an immediate deposit and others do not require a deposit at all. Depending on the family’s overall income the Canadian government will contribute to the RESP recipients and that is up to a certain amount. The plans are designed to help you. This is why you need an expert to walk you through it.
The family or RESP resident can save up to $50,000 without any taxes, which means there is no need of paying any taxes to the government and after you cross that limit your funding may subject to taxation by the Canadian government. It is always wise to do your homework. This is a good place to begin.
- This RESP amount can be withdrawn by the subscriber at the time of the student’s post-secondary education.
- Only the person who opened the RESP account can withdraw it.
- The subscriber will need documentation (a letter of joining) to submit to the bank that has all of your information listed as well as the schedule of the student. It is important to state if the student will be attending full-time or part-time classes.
- You can only withdraw $5000 during the first 15 days of your joining in the government-approved financial institute
- Once 15 days are over you can withdraw any amount of your choice.
- You cannot withdraw the funds early or else you may subject to paying fines.
- RESP plans are for residents of Canada only
- Only the subscriber who opened the account can claim the payment.
- RESP was open for at least 10 years before a withdrawal is requested.
What if you don’t use your RESP?
If the student you were saving for is not interested in advanced education, you can transfer the funds to another family member as long as the deposit does not put them over the maximum amount allowed. If that is not an option, you can withdraw the money. However, you will be charged a 20% penalty and will be responsible for the taxes on the money.
Can we use RESP for other expenses?
Yes, you can use the amount withdrawn from the RESP for other expenses as long as they are connected with your education. This could be expenses like your hostel fee, travel expenses as well as food expenses and uniform. But you cannot use the money for non-educational items.
You can use the money as long as you don’t spend the money on non-education related things like your personal uses or so.
The RESP plan has proven itself over the years. This plan has allowed people who are low income or middle income to send their children to some of the best colleges in the nation. It has taught the youth of our nation that working and saving toward a common goal is a worthy plan of action. Canada has invested heavily in our people and it is our people who have taken us to new heights. We will continue to rank in top levels of education studies around the world and we will continue to make new paths for our students to grow and learn.