Families know that saving for post-secondary education is one of the most important steps they can take to help provide their children with a secure future. The Canadian government created Registered Education Saving Plans (RESPs) to encourage parents to set aside money for their children’s post-secondary education in a tax-sheltered plan. That means money earned on savings in the plan are not taxed until money is withdrawn. Even better, the government offers matching grants like the Canada Education Savings Grant (CESG
) up to $500 per year, which could add up to a lifetime maximum of $7200.
Family Plans vs Individual Plans
Knowledge First Financial’s RESP experts say that when it comes to meeting the needs of most families, the preferred RESP is an Individual Plan because they offer much more flexibility for subscribers and their beneficiaries.
A Family Plan may be a good choice for some, but it is important to consult with an RESP specialist to ensure that this type of plan will help your family meet all of their goals. Family Plans allow parents to manage their children’s RESP under just one plan and potentially save on some fees; however, only parents and grandparents are eligible to open these types of RESPs. There are also time limits for Family Plans that may cause complications later on. For instance, in a Family Plan, contributions can only be made until the oldest beneficiary turns 31, or 31 years after the plan was opened—whichever comes first. This means parents cannot continue to contribute to the plan for any younger children, so they may miss out on significant benefits. Subscribers to Family Plans also need to keep an eye on how much government grant money is allocated to each beneficiary. If not specified, the contribution automatically will be split evenly between the beneficiaries in the plan.
Individual plans, on the other hand, offer maximum flexibility. Anyone can subscribe to this type of RESP on behalf of any beneficiary, including themselves. There are no age limitations on opening these types of plans. There are, however, some age restrictions for receiving the CESG matching grant.
Another feature of these types of RESPs is that the beneficiary can be changed at any time, so if one child doesn’t use their entire RESP funds, the plan can be transferred to a sibling or someone else. Government grants not used by a beneficiary would need to be repaid.
An individual plan can enjoy tax-free savings for up to 35 years after the plan is opened, regardless of the age of the beneficiary. That gives students a lot of wiggle room when it comes to finding their own post-secondary education path. In 2019, only 48% of students
finished their studies within four years. Many others take time off or go in different directions, so completion can take over 10 years
. If for some reason a student’s education is interrupted, they still enjoy tax-sheltered earnings until the plan reaches 35 years old. Students have more time to make decisions about their education. An Individual Plan will still be there when your student needs it.
Flexibility plus unique bonuses
Individual Plans like our Flex First
or the Single Student Plan
offer consumers choice in contributions and withdrawals, plus unique bonuses for students when they start their post-secondary education.