Seven questions to ask yourself before investing in an RESP

There’s lots of talk about RESPs lately, in bogs and on the news. This recent article from the CBC highlights important considerations when buying into a group RESP or scholarship plan, through one woman’s story. The lesson: always be sure you know and understand what you are investing in. Before you invest, ask yourself these seven questions:

1.         Have you compared the different types of RESPs?

Different types of plans are available at banks, credit unions, mutual fund companies, investment dealers or scholarship plan dealers. Before you commit, be sure you understand all your options.

2.         What fees are you expected to pay, and when?

You may have to pay sales fees when you open the plan, plus other costs as long as you hold the plan.

3.         Do you have a choice about when and how much you contribute?

Most plans let you decide when and how much to contribute, up to the annual and lifetime limits. Some plans require you to make contributions according to a set schedule. In this case, if you miss a payment, your plan may be cancelled and you could lose your earnings. You will receive your contributions back, less any fees.

4.         What kinds of post-secondary programs qualify?

Programs offered by colleges, universities, trade schools, CEGEPs and other certified institutions are eligible for an RESP. For more information, visit www.canlearn.ca.

5.         When and how will you receive payments from the plan?

To receive payments from your plan, students must show proof of enrolment in a qualifying program to their plan provider, sometimes by a certain deadline. Some plans make payments on a set schedule, while others let you decide. Some plans do not pay out earnings until a student starts the second year of a program.

6.         What if the student does not go on to post-secondary education, or does not complete their program?

You receive your contributions back, less any fees. In most cases you will receive your earnings. Some plans may keep these earnings and share them with the remaining members.

7.         What if you sign up for a plan, but change your mind?

Make sure you are aware of the costs of cancelling a plan. For group scholarship plans, you can cancel the plan at no cost within 60 days of signing the application, but it will cost you if you wait longer. For other types of plans, this time frame may depend on the type of investment you bought.