The Canadian government established the Registered Education Savings Plan (RESP) to help parents save toward their children’s post-secondary education. While these heritage resp savings plans provide many advantages for parents and their children, they can be confusing to understand, especially when setting up a RESP for the first time.
1. Obtain a Social Insurance Number for the Beneficiary
The first step in setting up an heritage RESP is to obtain a social insurance number for the child who will receive payments from the plan to fund his or her education. This beneficiary requires a social insurance number to receive access to benefits and government programs. It is also required to seek employment in Canada.
Parents can apply for their child’s SIN at any time by providing original primary documents to Service Canada. The Canadian government provides a list of the necessary documents on their official website.
2. Explore the Three Main Types of Savings Plans
There are different types of RESPs, allowing parents to choose the plan that best matches their situation. The main options include group, individual, and family plans.
With the individual Registered Education Savings Plan, parents set up a RESP for one child. The plan is typically set up through an independent financial advisor, a mutual fund, or investment advisors at local banks. Parents also have the option of managing the individual RESP on their own, selecting their own investment opportunities for the savings plan.
The family heritage RESP allows parents to contribute funds toward multiple children’s education. The payouts are provided to each beneficiary when he or she enters a university or college while parents only need to deal with a single savings plan.
The group plan is managed by an education fund or trust, which handles the investments. The contributions are pooled together with contributions from other group RESPs and used for low-risk investments for secure savings.
3. Determine If You Qualify for Additional Grants
Depending on your income level and location, your child may qualify for additional grants from your local government. Several provinces have their own set of grants and hertitage resp funds designed to help lower-income children receive higher education.
These options include the Quebec Education Savings Incentive (QESI), the BC Training and Education Savings Grant Program (BCTESG), and the Saskatchewan Advantage Grant for Education Savings (SAGES).
4. Choose the RESP Option That Suits Your Needs
The three main types of heritage RESP options provide their own advantages and disadvantages. Some parents may prefer the level of control that they have with the individual or family plans. However, the group plans often provide stable, low-risk investments.
5. Decide How Much You Want to Contribute
After setting up the RESP, parents should contribute to the fund regularly to begin saving toward their child’s future education while also receiving contributions from the government.
For each beneficiary, the government may contribute up to $500 per year. To get the full government contribution, parents need to contribute $2,500 annually.
Along with these steps, parents should consider talking to a financial advisor or investment advisor. These advisors are often available to banking customers at local branches, providing a convenient way to explore RESP options.