A Registered Education Savings Plan, commonly abbreviated as RESP from heritage education funds is normally a unique savings account that is specifically designed by the government for those parents who want to save for their kid’s post-secondary education. This account normally has a number of additional contributions made by the government as well as tax efficient withdrawals. This account is very important especially in the wake of the current high levels of student debt. The account has other numerous advantages but parents or other contributors should be wary of these common mistakes.
1. Starting Too Late
The earlier you start the better off your savings will be. Most parents do not give an RESP the attention and the priority it requires initially. They tend to start on it when it is too late. Some of the benefits of starting early include the fact that your savings will grow tax-free for many years and will benefit from the compounded interest which will be higher. This also means that you will qualify for numerous government grants. However, you will not be able to get grants if you do not start by the time your child is 15 years.
2. Under-utilizing the available grant funds
Most of the contributors are not taking the full advantage of the incentives and other grants that they are qualified for. Actually most parents are saving using other saving methods apart from the heritage RESP. It is advisable that parents carefully go through the grants details page and see all the eligible grants and take full advantage of the same. As the saying goes, information is power and contributors should be aware of all the government grants that they are eligible for.
3. Not treating RESP like an investment account
It is advisable for parents to treat their heritage resp accounts as investment accounts. They should invest in the growth-oriented investments when the child is young as you can draw the money out. However, as the child enters high school, the investment should have less fluctuations.
4. Setting the RESP in Auto-pilot
Most parents open the accounts and just set them on autopilot. It is imperative to regularly check the child’s RESP account as it will have lasting impacts. For example, you will be up-to-date with the current news, changes and eligible grants and incentives for the account. Since it is a tax-sheltered investment, you can top up the plan so as to ensure all government grants and incentives are fully taken advantage of.
5. Using all the money for education only
Most contributors think that all the money can only be used for education. However, this is not the case as there are many ways of using an Registered Education Savings Plan (RESP). An RESP can used for overseas education as well as apprenticeships and other reasonable expenses.