5 Basics of How Education Funds Plans Work
Parents often set up education funds plans before their children even begin high school. Students planning to enroll in college for the first time may have questions about how the whole Registered Education Savings Plan process works.
Remember these education funding basics for RESPs when applying for colleges:
1. RESP fund recipients must prove enrollment in a qualifying educational program.
Students who want to withdraw money for school expenses usually need to have enrolled in a certified post-secondary program studying for no less than 10 hours per week and at least three weeks in a row. Other restrictions might apply, but certain circumstances may only require a minimum of 12 hours per month of course work while Heritage RESP access in some situations could call for a minimum course duration of at least 13 weeks.
2. Beware of possible tax obligations.
After having earned credits, students usually must pay taxes on any Educational Assistance Payment sent directly to them. This pertains to RESP investment income earned as well as taxes normally placed on Canadian education savings grants and Canadian learning bonds. Any provincial education savings program paid out to a student might also be taxed in addition to RESP funds dispersed directly to students. One exception does exist concerning RESPs: Capital contributions are treated as refunds, so they are not taxable.
3. RESP accounts may cover post-graduation expenses.
Money often is available to students for a maximum of six months after having stopped enrollment in a post-secondary educational program. This gives students a chance to seek jobs in their chosen fields, and in the meantime, they still have funds to live. It also can provide them more disposable income for job preparation expenses, especially if they have to relocate when accepting an employment offer.
4. Education funds plans pay for more than just tuition and books.
Students can use them for room and board, laptops, software, tablets, pens and more. As long as the person enrolled in a qualifying learning course can prove that the purchase is for learning, they usually can use RESP money to buy just about any item with few restrictions.
5. Students can study abroad or online using RESP funds.
This could mean virtually limitless educational possibilities. In the process, it can broaden cultural horizons and improve understanding of people from different backgrounds. In some cases, learning in an alternative cultural setting does not even require travel to a physical destination. Students can learn about people groups from across the globe via online and correspondence courses using Heritage RESP funds.
Education funds plans set up for college bound individuals typically are either the family plan or a specified plan. The family usually is registered by a blood relative who plans to set aside college funds for multiple children, and the specified plan is one that requires no less than 12 hours of course work per month.