What Is An RESP? Choose The Correct Plan For Your Child's Education | RESP Explained (Episode One)

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An RESP is an investment account designed to help you save for a child's education. The big benefit with RESPs is that the government pays you to save by contributing a grant of up to $7,200 over the life of the plan.

The sponsor of the plan, usually the child’s parent or guardian, makes the contribution to the RESP. The government then matches 20% of that, up to a maximum contribution of $2,500 each year. That’s $500 in free money every year if you contribute the maximum. If you can’t contribute the full $2500 each year, you can carry forward unused amounts – but be aware that the maximum grant allowed in a calendar year is $1000.

There’s no annual limit on how much you can put into a child’s RESP but there is a lifetime contribution limit of $50,000. So if you wanted you could put that full $50,000 into the RESP as soon as its opened and grow that investment tax-free. But if you do that, be aware that you’ll only get the government grant on the first $2,500 of that amount. You’d be leaving at least $6,700 in free government money on the table.

TYPES OF RESPS

Individual RESP plans: Anyone can open an individual RESP and contribute to it. This can be a parent, a grandparent, a benevolent stranger who has money to burn, or even yourself.

Family RESP plans: In a family plan, you can have one or more beneficiaries; they all have to be related to the contributor, however. The beneficiaries also have to be under 21 when they’re added to the plan.

Group RESP plans:  In a group plan, one single child is the beneficiary and that child does not have to be related to you. However, since many people are contributing to this plan, the beneficiary shares the pooled earnings of investors with children of the same age. Group plans tend to have more restrictions and rules than other plans.

Additional grant information: https://www.canada.ca/en/services/ben...

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The content on this channel is for educational purposes only and does not provide specific investment or planning recommendations. Viewers should consult a qualified professional for retirement, tax, or estate planning guidance. Parallel Wealth and Adam Bornn are not responsible for any decisions made based on this content.