A “Registered Education Savings Plan,” or RESP, is a Canadian savings plan that helps parents and loved ones save for a kid’s college tuition. It’s like a long-term, government-backed GoFundMe. A "GovFundMe," if you will.
As soon as a child is born, a RESP can be set up by the kid’s parents or other legal guardian. Once it’s established, anyone can contribute to it, including parents, grandparents, aunts, uncles, friends...even random strangers. Until the kid turns 18, the Canadian government will even match a portion of the contributions made to the account, which is pretty sweet. Know what else is pretty sweet? When the recipient of the account withdraws those funds, they don’t have to pay taxes on them.
All that sweetness does come with a few caveats. First, while the contributions themselves aren’t taxed on withdrawal, anything the account earned (like interest) does get taxed. So there’s that. Second, even though one kid can have more than one RESP, the total max amount for all of his or her RESPs can’t exceed $50,000. Still a nice chunk of change, to be sure, but since the average four-year degree can cost anywhere from $32,000 to upwards of $120,000, we might need to do a little more saving on top of the RESP. And third, there are rules about how the money can be used. We have to at least start making withdrawals within 36 years of the account being opened, or the Canadian government can request their funds back. And if we use it for something other than a post-secondary education, we could end up paying big fees to do so.
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Finance: What is a Coverdell Education S...11 Views
Finance a la shmoop what is a Coverdell education savings account? Coverdell...[Man using a red umbrella]
nope not an umbrella for the farmer in the well what is a Dell anyway? uh no
different Dell remember farmer in the Dell? all right moving on
Coverdell was the senator who named this type of tax deferred savings account and
note it's tax deferred not tax free maybe that is you might put two grand a
year in this account and you don't pay tax on it this year it just gets
invested and it grows just like a 401k account and an IRA and a Roth more or
less but then when you withdraw the money you don't pay tax on it if you use [Cash withdrawn from ATM]
the dough for school that is for like private school fifth grade books and
uniforms or that no athletic scholarship in the Ivy League tuition at Princeton [Man walking towards college building and football hits his head]
Or the iPad app suite from shmoop yeah
you could spend it on us we'd appreciate it thank you if you don't spend the
money on education well then you get taxed in the normal way as if it's
ordinary income there are all kinds of restrictions in this plan like there's a [Restrictions appear]
max of two grand contributed per kid who benefits from it the dough has to be
distributed fully by the time the kid is thirty or go to others in the family for
education and if your family makes too much money like you work too hard you're
too successful well you might have to cover your own Dell yeah so yeah it's a [Man walking along with a Dell laptop]
great option for some and an excellent way to attend the school of your dreams
while temporarily staving off the taxes of your nightmares if you're really lost
or something to spend it on you know think of your friends here at shmoop...
we're happy to take your dough
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