How Much Do RESP Companies Charge
Introduction
The Registered Education Savings Plan, popularly known as RESP, is an efficient way to start saving for your child’s education. Given the ever-increasing cost of school, RESPs have prevented many families from being in debt when their children are ready for college. However, determining how much you will eventually need for your child’s RESP can be a little cumbersome, given that you do not know what their college preference will look like as they grow. Not all children will follow your plan, and at some point, you will have to allow your children to do what they love and not what you love. This disparity may increase the amount for their education, which may create a minor problem considering that the RESP fund might not have grown to the needed amount.
However, this is not the only thing you need to consider when setting up an RESP; here, you can learn about the amount an RESP will cost for a child and also understand this saving plan properly
Understanding RESP
Your RESP fund is divided into two. You have the one you contributed yourself and the part you didn’t contribute but was added by the government via grants and investment gains, also referred to as Educational Assistance Payment (EAP). The money you contributed is not subjected to any tax, which means you get to spend it all. However, the EAP is subject to tax in the hand of your child. Therefore, if you do not need all the RESP, you should withdraw and spend this part first.
It is also essential that you cannot withdraw the entire money at once. For instance, a full-time student has $5,000 for the first 13 weeks, while a part-time student has access to $2,500.
RESP is also transferrable. This means that if your child did not exhaust the RESP, you could easily transfer the remaining money to a sibling under the age of 21. RESP stays open for 35 years, which means it can be transferred from one person to another within these 35 years.
What can you use the RESP fund for?
The government does not issue any list of eligible things you can spend this money on in the real sense. However, you have the duty of presenting the things you need for your education.
Your Registered Education Savings Plan is wholly available for only education expenses. However, this does not mean college tuition alone; it can also be used for other things like paying for textbooks, cars for school purposes, meals, rent, gas, and maintenance. To withdraw your RESP fund for any of these purposes, you only need to present proof of enrollment into any college.
How much do RESP companies charge?
Since many companies usually promote RESP, you may wonder why this is happening and how much these companies earn from opening and maintaining an RESP account. Group RESP companies charge for the following:
- Sales charges
- Account maintenance fees
- All-inclusive management fees
- Independent review committee
- Returned payment fees
- Special information request fees
- Withdrawal fees
While it may appear like banks do not charge to offer this service, banks place the fees in a very discreet way to ensure that you do not lose your long-standing trust in their service. Bank charge for the following:
- Account management fees
- Trading fees
- Transfer fees
These companies and banks charge between $50 to $100 per year. This means that for every year you pay $2,500, about $100 belongs to the bank or company handling the RESP account.
Where you can detect these charges, the bank may offer you a mutual fund method as a way of investing in your RESP account. Though this method seems preferable, the truth is your bank is deducting a Management Expense Ratio [MER] of 4% of the total amount saved yearly plus extra charges under the following headings:
- Initial purchasing the funds
- Selling the funds
- Fund switches
While RESPs are a great way to prepare for your child’s education and may be the greatest way to ensure that your child receives post-secondary education, the requirement to save a certain amount of money can be daunting for some people. This is because earnings are not equal, and the requirement to save $2,500 is just unfair to some families. When you consider this along with the banks or companies’ charges, it becomes unjust because the company takes part in your incentive.
Alternative to RESP
The Insurance for Children plan is an excellent alternative to RESP. Though this plan does not come with a government grant, it comes with a value increment that naturally increases your monthly payment’s value in the long run.
The company allows a parent to save as little as $225 monthly, and you can do this consecutively for 20 years. This means you do not need to look for $2,500 at once.
Another benefit of this insurance scheme is that it is not meant for only educational purposes. With this, your child can decide to use the money for whatever financial purpose they find important. The Insurance for Children dividend can be used for startups or businesses, payment of college fees, medical bills, house rent, and can even make a reasonable down payment for a house.
Conclusion
Taking advantage of the Registered Education Saving Plan [RESP] is a way for parents to secure their children’s academic life even before they are 7. You do not need to wait till your daughter or son is 14 years before you start to think about how to make payment for his tuition. Impressively, the RESP comes with above 20% incentives on your total contribution, which means you can get government grand to even increase the total amount saved. Also, some local provinces provide additional grants to increase the amount.
However, where you find this saving option unfavorable for whatever reason, you can easily opt for other saving options like the insurance plan with the Insurance for Children company to get a more favorable and effective strategy for your child. Either way, you still get to enjoy a flexible and excellent saving option that ensures that your child does not need to worry about their college fee.