The Best College or University Savings Plan

For many parents, saving for their children’s higher education is among their core objectives in life. They want to provide their children with the necessary tools to lead highly productive and independent lives.

While there are many savings vehicles that parents can use to pool college funds, we must acknowledge that some of these plans are camouflaged bad deals. In order for parents to save adequately for college or university, only the best savings vehicle should be used. With so many options available, it can be confusing and difficult to determine which plans are among the best.

If you live in Canada, the good news is we’ve determined the absolute best savings vehicle you should use that is guaranteed to yield significantly more returns than all the other saving options—RESPs.

An RESP, Registered Education Savings Plan, is a saving and investment vehicle devised by the Canadian government to assist parents to save enough for their children’s post-secondary education. This is accomplished through the use of the Canadian Education Savings Grant (CESG) which the Canadian government provides to all RESP account holders. In order to assist parents accumulate more money, the government supplements all contributions made to an RESP with 20% grants.

The grants are awarded to a maximum of $500 a year i.e. for the first $2,500 contributed by parents. By signing up with an RESP provider such as Heritage RESP, parents become eligible to receive up to $7,200 in lifetime grants from the Canadian government. It’s worth noting that this is a basic grant amount. For more information, you should check out Heritage RESP’s reviews or you can also contact them directly.

There are other additional grants that the government offers parents who require more assistance e.g., single parents or parents with low income. Known as additional CESG, these parents can receive an extra 10-20% on top of the basic grant, in order to supplement their savings. Collectively, the grants translate to 30-40 cents per dollar invested in an RESP. Put in perspective, this means parents receive anywhere between a 30% and 40% return on investment for their first $2500! This is the only savings vehicle that offers such high interest rates.

And that’s not all. Parents with RESP accounts also stand to benefit from further government assistance through the Canada Learning Bond (CLB). This was devised to further assist low-income families, particularly those with kids born after January 1st 2004. When parents secure RESP accounts for such children, even if the child is enrolled under the National Child Benefit, he receives an extra $500 from the CLB as a result. An extra $100 dollars is also deposited in the child’s RESP each consecutive year until the child reaches maturity.

Other benefits associated with RESPs include:

1. Tax-sheltered payments

All contributions to RESP accounts aren’t taxed. This applies to funds below $50,000. Any amount above this limit is subject to getting taxed at the prevailing rates.

1. Early withdrawals

With RESPs, parents don’t have to wait until college in order to make a withdrawal. They have the freedom to do so at any time provided the money is invested in the child’s post-secondary education. If it’s withdrawn to meet the child’s higher education, suitable taxes may be levied. The parent is also free to determine the amount to be withdrawn.

1. Change of beneficiary

With RESPs, parents can easily change the name of the beneficiary at any time, provided the beneficiary is less than 21 years when he/she is included in the plan. It should be noted that all RESPs support this. There are two major types of RESPs, i.e. a single plan and a family plan. Under the single plan, only one beneficiary is permitted. When changing the beneficiary, no blood relationship is required and the beneficiary can be named at any age. On the flip side, there are also family RESPs that support more than one beneficiary and require that all the beneficiaries be related by blood to the subscriber/parent (nephews and nieces are excluded). All beneficiaries must be under 21 to be named.

By having several RESP options, parents can choose the most appropriate RESP plan for their children or the children under their protection depending on the situation. Parents can also continue making contributions to RESPs until the child turns 31 years old or the plan itself completes 31 years since opening date.

To read more on topics like this, check out the lifestyle category.