What is an RESP – 3 common mistakes made by contributors.

Education - Formulas on a blackboard.

Written by: Lianne Castelino

Published: Apr 29, 2015

Guest Contributor

Mistake #1 – An RESP is too risky of an investment for me

An RESP is not an investment, it is merely an account designated by the government as a plan to provide financial assistance to children attending post-secondary education. An RESP has several features which include additional contributions made by the government and tax efficient withdrawals.

Mistake #2 – There is no flexibility when it comes to making payments and choosing an investment

If you want full flexibility in controlling how much can be put into the account, and changing your level of payments over the years, you should stay away from “Group” RESPs and opt for a “Family” or “Individual” RESP. Family or Individual RESPs allow the contributor to control how often, and how much money is put into the RESP account. They also allow for a wide variety of investment types to be held in the account such as mutual funds, stocks or interest paying investments.

Mistake #3 – There’s a chance my child won’t pursue post-secondary education, I don’t want to lose all the money I put in.

Through an Individual or Family RESP Plan, you have the option of withdrawing the money contributed by you. Any money put in by the government will have to be returned back to the government. Contributors can choose to roll over the full amount remaining in the account to their RRSP without any penalty. If contributors wish to withdraw the money as cash, they will be subject to income tax on all withdrawals.

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