A Registered Education Savings Plan (RESP) is a tax-deferred education savings vehicle by which the federal government allows a parent or grandparent to save money for a child’s post-secondary education. RESPs offer the benefit of increased savings as a result of the Canada Education Savings Grant (CESG) program. The government will match 20 per cent of what the subscriber contributes each year to the beneficiary, up to a maximum of $500 per year (the grant attracted from a $2,500 contribution).
Individual Plan- One person is the beneficiary and anyone can be the subscriber. In an individual plan, there can only be one beneficiary, who can be anyone at all, whether related to the subscriber or not.
Family Plan- There can be more than one beneficiary as long as they are all related to the subscriber by blood. A blood relationship in the context of an RESP, includes a child that is related to the subscriber. In a family plan, you can name more than one beneficiary; however, each beneficiary must be under 21 and related to the subscriber by blood or adoption, as defined in the Income Tax Act.
For each beneficiary named in the plan, the subscriber can put up to a lifetime maximum into an RESP. There is no annual contribution limit.
The Government will provide the Canada Education Savings Grant (CESG) based on the amount contributed to your RESP and your net family income.
RESP contributions are not tax-deductible; growth earned on contributions is not taxable until it is withdrawn from the plan.
Once the child starts a post-secondary education program, education assistance payments (EAPs) may be withdrawn form the RESP to pay for tuition, books, and accommodation – in fact, anything that will assist the child during his or her studies.
The growth and CESG portion of the RESP can only be paid to the child if he or she is actually enrolled full-time in a qualifying education program, or part-time in the case of student with a disability. It will be taxable to the child as “other income”. If he or she does not pursue a post-secondary education, you may withdraw the accumulated income under certain circumstances and the grants will be forfeited.
If your child completes his or her education and there’s money remaining in the plan, you can name another beneficiary.
Depending on your needs, you may choose either an individual or a family RESP plan and name multiple beneficiaries.
For more information on RESPs, please click here.
If you would like to set-up an individual or family RESP plan or want more information please contact us.
Robin Muir, CFP®, CLU®, CH.F.C.