Registered Education Saving Plan [RESP] is an impressive saving option that allows you to save ahead of your child’s education.
While it is easy to think your children’s education will start years from now, it will be surprising to see that 17, 18, or 20 years is not that far after all. This is why saving via RESP is one way to go about this.
RESP is a combination of parent savings and government grand aimed at ensuring that children can enjoy their rights by giving them access to quality education.
Though grandparents, aunts, uncles, and parents can set up this saving plan for a child, to enjoy this option, the child is required to have a Social Insurance Number and must reside in Canada at the time of setting up the plan and contribution.
This article contains six facts about the RESP bank or company fee that is deducted yearly on each account, all in the name of maintenance.
Fact 1: Not Everyone Knows About the RESP Fees
One fact that has remained almost unchangeable is that companies and banks offering RESP account opening and maintenance make it seem so much like they are not charging too high.
However, they do. A bank or company charges yearly on your savings. When you calculate this by the number of years required to maintain this account before it can cover the school fees, you realize you’ve paid a lot more for the companies that appear harmless, as if they are helping you.
Fact 2: Money Earned From the RESP Is Tax-free, Not Charges Free
Among all the benefits of RESP, one impressive use is that the money saved in the plan is tax-free. Simply put, you do not pay any tax on that money, and your children do not pay tax on it as well.
It is essential to note that the no-tax policy only works regarding the contribution; there is a tax on the government grant.
Also, one of the bad sides of the RESP is that though the Canadian government does not levy tax on the money, bank and group companies charge up to $100 yearly on the account for maintenance.
If you consider the recommended Mutual Fund method of savings, you will be consenting to a 4% yearly fee.
Fact 3: A Quality Access to Government Education Grants
Though RESP fees expose you to certain charges, they also give you a government grant. Post-secondary education is expensive in Canada and perhaps every part of the world.
This makes it a burden for many parents who cannot meet the financial requirement to send their children to school. Through this medium, the government eases the payment of tuition fees by providing the parent with a grant option that first requires that they start saving.
The savings plan also simplifies the process and ensures that you do not need to wait until your child is 18 or until the payment is knocking on your door.
Fact 4: RESP Fund Is Transferrable, and So Is the Fees
Another reason why many consider the Registered Education Savings Plan is that it is transferable from one person to another.
This means you do not have to fear saving up the money because even if the child you saved it for is eventually not interested in college, you can quickly transfer the funds to their siblings and use it to sponsor their education.
However, it is essential to understand transferring the fund does not eliminate the charges on your account. So far, the account exists and is being maintained by a bank or licensed company; or you will be charged yearly.
Fact 5: RESP Fees Can Run for 35 Years
Your Registered Education Saving Plan can remain open for 35 years. This means the fund is only accessible for this period, after which it is automatically terminated. While this should be enough years for your child to start and finish their post-secondary college, you must consider the fee on your savings for these 35 years.
However, the fact that your account will remain open for 35 years also means that the bank or company in charge of your account will charge you consecutively for 35 years, irrespective of whether your investment is doing well or not. Where you opt for the mutual fund, you may end up paying charges that are significantly above $100.
Fact 6: RESP Fees Amount to a Total Waste of Money if the Saving Is Not as Helpful as Expected.
It is important to note that the RESP saving is only for education or educational-related purposes. This means you are only paying the fee because you expect that your child will go to college and make use of the money.
In situations where your child decides not to go to college, the fact that the funds cannot be quickly withdrawn means all payment made to your bank or company is a waste.
Though RESP is an impressive savings plan established by the Canadian government to provide financial support because education is costly in Canada.
However, understanding the Registered Education Saving Plan [RESP] is fundamental knowledge required before setting up a plan.
For instance, you must understand the amount charged on your savings before opting for the service. That way, you can consciously decide and know what you are signing up for.
Knowing how high the fees are and how frequent they can increase or change is also essential knowledge required before opening an account and proceeding with savings.
If you are wondering about a different saving option for your child, the Insurance for Children insurance plan is a good option you can consider.
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