Why does my child need a RESP?
Every parent wants to make sure that their child gets the education they deserve, unfortunately a good education is not cheap. Thanks to the current rise in tuition costs, education will be even more expensive in the future.
Because of the increasing costs, the federal government has recently made some adjustments to registered education savings programs (RESPs). The $4000 annual maximum contribution limit has been waived and the lifetime maximum contribution ammount has been increased to $50,000. In addition the annual RESP contribution qualifier for the CESG also incresed to $2,500. This means that the maximum CESG for each child has increased to $500 from $400 (considering that the CESG generats a 20% increase to your yearly constribution). What does all this mean for me?
So what does all this mean for you? Well, to start, if you have a big lump sum handy(say, $50,000) you are now free to put it into your child’s RESP in one go, which might be the right thing to do depending on factors such as your child’s age and your tax status. But that might not be the best strategy if you want to maximize your use of the CESG on an annual basis – and the CESG is really one of the best things about opening RESPs for your children since the government is effectively giving you $7,200 towards education(free money!). The key is to make sure that your future contributions make you eligible for the full CESG and allow you to save enough to pay for post-secondary education.
All RESPs are not created equal
With Registered Education Savings Plans(RESPs)becoming more popular it can be hard to decide which type of RESP plan is best for your child. These are the most common types of RESP plans availablesrc
RESP Investment Tips
Prior to meeting an RESP representative, you shoudl make sure you fully understand what you are getting and don't shy away form asking questions. Here are a few thinks to consider:/p>
- Make sure you know what happens if you miss a payment, terminate your plan, or want to transfer the RESP between plans or beneficiaries.
- Read the prospectus - if you don't understand it, don't invest until you do. If you change your mind after starting a plan, you have up to 60 days to cancel your purchase at no cost to you.
- Understand how sales people are paid, and where those payments come from.
- Know what fees you are expected to pay, and when you will pay them.
RESP Investment Tips
When meeting with an RESP representative, make sure you know what you are getting and don't be afraid to ask questions. Here are some pointers on things to consider and understand:
Make sure you know what happens if you miss a payment, terminate your plan, or want to transfer the RESP between plans or beneficiaries.
Read the prospectus - if you don't understand it, don't invest until you do. If you change your mind after starting a plan, you have up to 60 days to cancel your purchase at no cost to you.
Understand how sales people are paid, and where those payments come from.
Know what fees you are expected to pay, and when you will pay them.
Don't make investments based on verbal representation - get it in writing.
Check the registration and qualification of your investment representative.
Don't fall victim to aggressive marketing techniques - take your time and do your research.
Review the rules for the types of post-secondary education that are eligible under the RESP that you choose.
How much work is being done to earn the management fees? If your money is being invested only in simple, low risk instruments like GICs and T-Bills the management fees should be relatively low.http://www.osc.gov.on.ca/Investor/Check/cbyi_resp.jsp