Personal Finance » Education Funds

Three different types of RESPs

There are three basic types of RESPs: individual plans, family plans and group plans.

Anyone can open an individual RESP and anyone can contribute to it. This includes parents, grandparents, aunts, uncles and friends. You can even contribute to an individual plan for yourself.

A family RESP can have one or more beneficiaries, but each beneficiary must be related to the contributor. The beneficiaries must be under 21 when they’re named. Contributions can only be made until a beneficiary turns 21.

A group/pooled RESP pools the contributions of many investors. Contributions are made according to a schedule and are used to buy plan units. The date the plan matures is set at the time of enrolment and is based on the child’s birth date. When the plan matures, the beneficiary usually shares in the pooled earnings of investors with children the same age. If your child does not begin postsecondary studies at the same time as the rest of the group, the earnings you receive from the plan may be affected. And if you drop out of the plan before it matures, you forfeit all of your earnings to the group. These plans are sometimes known as Scholarship plan RESPs, which you buy from scholarship trust companies.

Choosing the right plan

You can open an RESP through banks, credit unions, mutual fund companies, investment dealers and scholarship plan dealers. You’ll need a social insurance number (SIN) for yourself and each beneficiary to open a plan.

Each type of plan works a little differently. Make sure you understand all the rules before you choose a plan. Here are some of the things you need to consider before you invest:

– Number of beneficiaries
– Age of beneficiaries
– Investment options
– Risk and return
– Fees and Costs
– Liquidity
– Ability to withdraw funds
– Cancelling the plan

Your RESP provider or financial adviser can give you information about specific plans and help you choose the plan that’s right for you.

Click here to read more information about RESPs: Lots to Know about RESPs

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