Saving for College in Canada: RESP

Posted: 28 Sep 2010 04:30 AM PDT

It is College Savings Month in the U.S., but you really don’t need an excuse to start setting money aside for college. It is always a good idea to prepare for the future, planning for college expenses and setting money aside to help offset some of the costs associated with university. In the U.S., many families make use of the 529 plan for college savings, and Canada has its own vehicle for colleges savings: The RESP.

What is the RESP?

A Registered Education Savings Plan (RESP) is basically a contract between two parties: the subscriber and the promoter. The subscriber makes contribution to the savings plan, and these contributions earn income. The promoter is in charge of overseeing the RESP and ensuring that everything proceeds as it should. The promoter is also in charge of make sure money goes where it needs to on behalf of beneficiaries. Beneficiaries of the plan are named, and these are the people who have the right to have money in the RESP used on their behalf for educational expenses. There are two main types of plans:

Family plan: This type of RESP allows more than one beneficiary to be named, and the beneficiaries must be related by blood or official adoption to the subscriber. Usually, beneficiaries initially named in plans started after 1998 must be under 31 years of age, except in specific circumstances.
Specified plan: With this kind RESP, there can only be one beneficiary named. There are rules about the way disability tax credits are applied in certain years, as well as when some contributions can be made, as well as how other individuals can be named beneficiaries.

Because the RESP is a contract, it has interesting rules. The plan promoter pays out contributions and earnings to beneficiaries as educational assistance payments. Government grants can also be put into the RESP, including provincial program grants, the Canada Learning Bond, and the Canada Education Savings Grant. Beneficiaries are required to include earnings paid to them (but not the contributions made by the subscriber) as part of their income for tax purposes. If money is not used by beneficiaries, the subscriber gets the contributions back, tax-free. It is important to note that there is no tax benefit to subscribers for contributing to a RESP.

It is possible to transfer property from RESP to another, usually without tax consequences. However, it can help to double check requirements to make sure that you are accomplishing everything as you should. Consult with a professional if you are unsure of how to proceed. In most cases, the plan promoter is responsible for making sure that all payment to beneficiaries are made in accordance with the proper rules.

Saving for college is a smart move. Many families enter RESP plans as a way to help fund their children’s education, in conjunction with the government assistance that is provided. Make sure you understand the rules involved with the RESP before entering into one. Once you have decided that you can be benefited, you can then make a decision as to how much to contribute.

Dollar Matters: Loonie Edition

Posted: 27 Sep 2010 09:00 AM PDT

I’m an American contributing on a Canadian finance blog. One thing I’ve learned since starting here at Financial Highway is that there are quite a few great finance blogs out there written from a Canadian perspective. Enjoy these posts from some of the Canadian finance blogs:

Best Way To Invest in Africa

Clare at MoneyEnergy offers a look at the best way you can invest in Africa, helping you capture a little of the global wealth moving around on that continent, with special focus on the fact that Africa is not homogeneous.

I Should Have Bought An Index Fund

Tom at Canadian Finance Blog provides some insight into his regret that he didn’t buy an index fund instead of an actively managed fund when he initially opened his RRSP account. A great look at index funds vs. actively managed funds.

Guest Post: Personal Finance Mistakes

Roger writes a guest post for Canadian Personal Finance Blog that offers a confession of specific personal finance mistakes. Are you guilty of any of these?

Is Indexing Less Risky?

The Canadian Couch Potato looks at indexing, and why it is a winning strategy. However, this is not because indexing is less risky than other investing strategies. A thoughtful look at indexing.

Is it Just Me or is it too Good to Be True?

The Dividend Guy looks at what is going on in the world of dividend yields, and the opportunities being created right now and asks us to pause. Could all of this be too good to be true?

Does gold have a place in your portfolio?

Thicken My Wallet looks at the pros and cons of having gold in your portfolio, and addresses the types of strategies that might be appropriate for gold. And issues a warning about what could be next for the precious metal.

Ways to Track Your Spending

Million Dollar Journey offers helpful ways for you to track your spending so that you can get your budget under control, and your financial plan back on track.

How to achieve a happy client-adviser relationship

Rob Carrick, blogger at the Globe and Mail, offers some solid information on improving your relationship with your financial adviser.

Life Insurance Blog