RESP & INVESTMENTS

What is an RESP? 

A Registered Education Savings Plan (RESP) is a special savings account for parents who want to save for their child's education after high school. 

The RESP, sponsored by the Canadian government, encourages investing in a child's future post-secondary education. Subscribers to an RESP make contributions that build up tax-free earnings. The government contributes a certain amount to these plans for children under age 18.  

Anyone can open an RESP account for a child—parents, guardians, grandparents, other relatives, or friends. 

A person can open a plan for a child and can also name themselves or another adult as the beneficiary. 

An RESP allows adults to earn interest on their RESP tax-free. Contributors do not receive a tax deduction for investments in an RESP. There are no taxes due until funds are taken out to pay for a child’s education. At that time, contributions made into the RESP are returned tax-free, although contributors’ earnings from the plan are taxed. The money the government pays out is taxed to the students. However, since a large number of students have little to no income, many can withdraw the money tax-free. 

The extra funds the government deposits are called the Canadian Education and Savings Grant. The amount provided is graduated, based on family income. Matching benefits apply only on the first $2,500 in contribution per year. The amount of the grant is capped at a maximum of $7,200.  

Key Points: 

1. A Registered Education Savings Plan (RESP) is a college plan sponsored by the Canadian government. 
2. Subscribers to an RESP make contributions that build up tax-free earnings for paying for higher education. 
3. In addition to parental contributions, the government contributes a certain amount to these plans for children under age 18. 
4. The Canadian government caps the lifetime contribution limit of $50,000 per beneficiary from all RESPs combined. 
5. If a child doesn't pursue an approved post-secondary education training program within 36 years of opening the account, the government can request the grant money back. 
6. There are penalties and income tax incurred on investment earnings that are withdrawn from an RESP and not used for college or vocational school. 

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   What is a segregated fund?

A segregated fund is a type of investment fund used by Canadian insurance companies to manage individual, variable annuity insurance products. A segregated fund offers investment capital appreciation and life insurance benefits. 

Investors can expect to pay a slightly higher total expense ratio on segregated funds due to their more complex structure. Additionally, these fund offerings typically do not have aggressive fund objectives. Therefore, returns from the funds tend to be more modest.

Segregated funds are structured as deferred variable annuity contracts with life insurance benefits. They are managed in separate accounts by the insurance company. These products are similar to other variable annuity products offered by insurance companies. They are primarily issued by Canadian insurance companies for Canadians. The products are not traded in the public market. They are structured as contracts and do not account for ownership by shares or units.

Segregated funds must be held until maturity. An investor can choose to invest in a segregated fund based on its investment objective and product terms. Segregated fund offerings vary broadly by objective and underlying investment options. They also offer investors varying terms for annuity payouts and the life insurance benefit.

Key points:

• A segregated fund is an      investment pool structured as a deferred variable annuity and used by      insurance companies to offer both capital appreciation and death benefits      to policyholders.
• Commonly found in Canada,      segregated funds are private contracts between insurers and customers that      must be held until contract maturity.
• Because these products      offer better guarantees than traditional insurance or annuity products,      they do come with higher fees and expenses.

Contact us for your RRSP and TFSA investment needs 

at 416-779-2323