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What are Registered Education Savings Plans (RESPs) and How do They Work? RESP or Registered Education Savings Plan is a popular child’s educational option available in Canada for families who need support for their kids’ future after high school. Though RESPs in general are known to benefit children, anyone in this country can actually open one with an adult as beneficiary. If you are the one who opened the plan, you will then be referred to as the “subscriber.” Once your child levels up to post-secondary education, what happens is that they can begin taking advantage of their RESP by way of taking payments referred to as EAP or educational assistance payment. By definition, EAPs are comprised of investment earnings as well as grant money from the government. Once your child begins receiving EAPS, he or she then is called the beneficiary. So, if you are living in Canada and is interested in RESP, here are the most basic yet important things you need to know about it; remember, the key is picking the right plan for maximum success.
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1 – One of the first things you must know about your savings in RESP is that they’ll grow tax free. Simply put, as long as your investment earnings are staying put in your plan, it means they won’t be subjected to taxes.
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2 – Next, know that if you save for your kid who’s 17 years old or younger, it means that the government is obliged to put money into the RESP, which in turn is classified later on as a grant or bond. 3 – Moreover, you must become aware that since it is your account or plan, you have the freedom to add money to it whenever you want; but mind you, the usual lifetime warranty amount is $50,000. But you should be aware as well that some plans will require you to set and schedule monthly or annual contributions. 4 – Meanwhile, contributions aren’t tax deductible, too. Be reminded as well that you actually can withdraw the tax tree from the plan whenever you want. 5 – It may be true that you are relatively new and unfamiliar with this type of program, but understand that it’s never really a difficult decision to make because you have so many different investment options available, including bonds and stocks, mutual funds, and GICs. In the end, you simply must understand and recognize the fact that with the sheer number of available plans out there, it means you can pick something that should be flexible enough for you to weigh on your options and figure out which of them have a good potential of converting your savings investment into success.