The RESP: Demystifying False Beliefs
There is a lot said about the Registered Education Savings Plan (RESP). Let's debunk the most frequently heard myths for you.
You want to open an RESP to help pay for your child’s postsecondary education but don’t know where to start? Let us demystify RESPs by clearing up certain misconceptions people have about them.
The most popular myths about RESPs
There are many myths surrounding RESPs. Here are the main ones:
Myth 1: If your child doesn’t continue his/her education, you lose your investment
False. At iA Financial Group, we offer individual and family plans, which have considerably fewer restrictions than some group plans. If your child decides to not pursue postsecondary education, you will have the ability to change the beneficiary. You can therefore transfer the money invested for an older child to a younger child and increase the value of his/her RESP. Of course, certain filiation rules apply.
If you have no other dependent children, there are other options available to you. First, the contributions made in an RESP can be withdrawn. The investment income earned on these contributions can be transferred to your RRSP or your spouse’s RRSP if you have the necessary room. Only the grants will have to be returned to the various governments.
Additionally, it is important to remember that you must withdraw the money accumulated in the RESP no later than 35 years after it is set up, which gives your child or grandchild lots of time to change his/her mind and pursue his/her postsecondary education later.
Myth 2: RESPs only cover university tuition
False. Not only do RESPs cover university tuition, they also cover CÉGEP tuition if you live in Quebec, and the costs for several professional programs. RESPs can also be used to cover other costs, including school supplies, transportation and rent. They can also be used for international studies.
iA Financial Group only requires the child be registered in postsecondary education or training for him/her to be able to withdraw money from the RESP. It is important to understand that it’s up to the beneficiary how to use of the money from the RESP.
Myth 3: Your child is older, so it’s too late to open an RESP
Not at all! Ideally, to receive more in government grants, you should invest in your child’s RESP on a regular basis.
However, if you start saving later on, you can still catch up. You can recover unused grants from previous years in a short time with an RESP loan.
Speak to an advisor to receive unexpected grants. Sometimes an advisor’s advice can make all the difference.
Myth 4: If you’re not the child’s parent, you can’t invest in an RESP
Not true! With an individual RESP, the subscriber can be a parent, a grandparent, a godparent, an uncle, an aunt, a close friend, etc. In fact, anyone can open an individual RESP for a child, regardless of whether or not they are related. The cumulative contribution ceiling is $50,000 per beneficiary. This means that a parent and a grandparent, for example, can each open an RESP for the same beneficiary. However, contribution ceilings must be respected to avoid tax penalties.
Contact an advisor to see what solutions are available. He or she will suggest the best solutions for your situation.
Use our education savings calculator to determine how much you can receive in government grants.
And remember, an RESP is a choice that really pays off for your child’s future. It’s not too late to invest!
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