Choosing the right Registered Education Savings Plan (RESP)
Who can open an RESP?
Anyone—parents, grandparents, other family members and friends—can open an RESP for a child. RESPs can be opened by one person, or opened jointly by spouses or common-law partners. They can also be opened by child-care agencies. While you can open a plan for a child, you can also name yourself or another adult as the beneficiary.
Selecting the right RESP
It is very important to choose the right type of RESP. Your financial institution can help you. You can open an RESP at a bank, a credit union, a mutual fund company, an investment dealer or a group plan dealer. Group plans are offered and administered by organizations that offer group scholarship plans.
There are three types of plans:
1. Family plan
A family plan is ideal if you have more than one child.
You can name one or more children to receive the savings when it is time to pay for their studies after high school. The children must be related to you, either by blood or adoption. They may be your children, stepchildren, grandchildren (including adopted grandchildren), brothers or sisters.
Under the Income Tax Act, a “blood relationship” is that of a parent and child (or grandchild or great-grandchild), or that of a brother and sister. Nieces, nephews, aunts, uncles and cousins are not considered blood relatives. Also, you cannot be considered a blood relative of yourself.
The advantage of a family plan is that earnings can be shared among the children, and the Canada Education Savings Grant may be used by any beneficiary named in the RESP, to a maximum of $7,200. The Additional Canada Education Savings Grant and the Canada Learning Bond can be paid only if all the beneficiaries in the plan are siblings.
2. Individual (non-family) plan
This type of plan is ideal if you are not related to the child you are saving for. In this type of plan, only one beneficiary is named in the RESP, and the beneficiary does not have to be related to you.
3. Group plan
A group plan is for one child only, and the child does not have to be related to you.
A group plan is ideal if you can make regular payments throughout the term of the RESP. In this type of plan, your savings are combined with those of other people. How much each child gets depends on how much money is in the group account, and on the number of students of the same age who are in school that year.
These plans are provided by group plan dealers who usually invest the money in low-risk investments. Each group plan is different and has its own rules. As you would with any investment, be sure to read the plan rules carefully.
Usually, you will be asked to commit to making regular payments into the plan over a certain period of time. Fees may apply if you stop these regular payments. Group plans are a good option if you prefer to have someone decide how to invest the money for you and you are fairly certain the child you are saving for will continue his or her education after high school.
Ask your group plan dealer for details.
For more details about RESPs in Canada, visit the Canada Revenue Agency website.
Opening an RESP
Follow these two easy steps:
- Get a Social Insurance Number (SIN) for your child, and get one for yourself if you do not already have one. There is no fee; however, certain documents, such as birth certificates, are required.
- Choose an RESP provider that best suits your needs. Most financial institutions (such as banks and credit unions), as well as certified financial planners and group plan dealers, provide RESPs.
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