In todays world the increasing cost of post secondary education is bothering many parents how they can fund their child’s education. RESPS are very effective tool for educational planning for your children and grand children, The rising cost of Post secondary education is always concern to the parents and grand parents. The main reason why people invest into RESP is very obvious as they can receive grants from government.
Types of Grants
- CESG: Basic Grant available to all eligible beneficiaries . The Government contributes 20% of the contribution amount to a maximum of $500 per year. The maximum CESG a beneficiary can receive is $7200
- Additional Grant: Additional Grant is available for the eligible beneficiaries depending on to the family income thresh holds
- CLB: Canada Learning Bond is available to for all eligible beneficiaries. Maximum amount available is $2000. No personal contributions to an RESP are required to receive CLB.
Often Subscribers get overwhelmed as there are so many plan types available in the Market Place. To simplify their decision making process we would like to break down RESPs in three main categories.
- Group RESPs ( provided by Trust Companies)
- Individual RESP ( provided by Banks and Insurance Companies)
- Family RESP ( provided by Banks and Insurance Companies)
Group RESPs
Group RESPs are not the best option for the clients as they have very high enrollment fees and investment options are very limited. Very often these RESP providers offer very low rate of return and no flexibility to the client. In case the client wants the make any changes in the plan ( reduce the monthly contribution or stop the monthly contribution ) the penalties are very high. As investment horizon in RESPs is more than 10 years ( in most cases) these RESPs are not even able to yield a return higher than inflation. Most of Group RESP providers offer EAP ( Education Assist Payments) at the maturity of the plan but fail to provide the amount of EAP to the client. Moreover the withdrawal schedule is also not very flexible.
Individual RESPs
Individual RESPs are offerd by almost all major financial institutions ( eg Banks and Insurance Companies) and are very popular. Most of the time these RESPs are mutual fund based or Seg Fund based ( in case of Insurance Co) and are subject to Market Risk. Clients can experience a significant amount of volatility inside the RESP portfolio due to volatility in Capital Markets. Also some of the financial institutions do not apply for the additional grants the clients might qualify.
Advantages of Individual RESPs
- Completely flexible plans.
- The subscriber can increase decrease or stop the monthly contribution at any time.
- Low fees structure as compared to Group RESPs
- No Enrollment Fees
- Insurance companies can provide maturity guarantee at an extra cost to the client
Disadvantages
- Volatility in the Portfolio
- In the event of significant Market corrections eg 2008 or this year 2020 the subscriber might have to realise heavy losses as the child can not postpone the post secondary education.
FAQs
- What happens if the child decides not to pursue post secondary education?
In the event of child not taking up the post secondary education the contribution and growth on contribution goes to the subscriber while the grants and the growth on the grants goes to the Government. - Does RESP contribution limit gets carried forward for the later years?
Yes until the beneficiary turns 18. There are some more conditions once the child turns 15. - What is the maximum grant a child can receive in Life time?
The grant received by a child in Life time is $7200. In addition , depending on the family financial situation he/she can qualify for additional grants.
English