What is a Registered Education Savings Plan (RESP)?
An Education Savings Plan (ESP) is a savings vehicle generally used by parents to save for their children's post-secondary education. More precisely, it is a contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber makes contributions that accumulate tax-free earnings. In return the promoter agrees to use the accumulated funds to pay or to cause to be paid educational assistance payments to one or more beneficiaries designated by the subscriber. A Registered Education Savings Plan (RESP) is an ESP that has been registered with Canada Customs and Revenue Agency.
Types of plans
Non-family plans: These plans can only have one beneficiary. There are no restrictions on who can be a beneficiary under these plans. This means that anyone can be the beneficiary of a non-family plan. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.
Family plans: These plans can have one or more beneficiaries. However, each beneficiary must be connected by blood or adoption to each living subscriber under the plan or have been connected to a deceased original subscriber. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.
Group plans: These plans are usually offered by non-taxable entities like foundations. These plans are administered on an age group concept i.e. all contracts for beneficiaries who are 9 years old are administered together. Contributions to a Group plan are calculated by the Foundation's actuary. The amount and frequency of these contributions stay the same as long as the beneficiary has not attained 18 years old.
