What is a RESP?
A REGISTERED EDUCATION SAVINGS PLAN(RESP) is an education savings account that is registered with the Canada Revenue Agency(CRA). It is a savings vehicle used by individuals to save for children’s post-secondary education. The plan offers incentives from the Government in the form of bonds and/or grants.
Once registered, the plan becomes the account for education savings incentive payments made on behalf of the child. Earnings in the plan are tax sheltered.
Unlike contributions made into a Registered Retirement Savings Plans (RRSP), RESP contributions do not reduce taxable income for the owner.
Who can open a RESP?
A parent, legal guardian or a grandparent can open a RESP plan. The person who opens the plan is called a Subscriber/Joint Subscriber. The child or children are called the Beneficiary.
RESP CONTRIBUTIONS
What is an RESP Contribution?
A contribution is money deposited into an RESP by a Subscriber for a particular Beneficiary. Contributions always belong to the subscriber. Contributions are eligible for educational savings incentives, government grants and or bonds.
It is important to note that contributions are not tax deductible and no tax is payable on contribution withdrawals.
You can open an individual plan, a family plan or a group plan. Group plans are only offered by scholarship plan dealers. They tend to have higher fees and more restrictive rules than other plans.
Canada Education Savings Grants (CESG)
The Government of Canada provides an incentive for parents, family and friends to save for a child’s post-secondary education by paying a grant based on the amount contributed to an RESP for the child. The Canada Education Savings Grant (CESG) money will be deposited directly into the child’s RESP.
Who Qualifies for the Basic CESG?
No matter what your family income is, the Government pays an amount of Canada Education Savings Grant (basic CESG) of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.
Who qualifies for the additional CESG?
Canada Education Savings Grant (additional CESG) is based on the adjusted income and can change over time as the adjusted income changes.
For 2017, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:
- 40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $45,916 or less; or
- 30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $45,916 but is less than $91,831.
Every child under age 18 who is a Canadian resident will accumulate $400 (for 1998 to 2006) and $500 (from 2007 and subsequent) of CESG contribution room. Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.
Beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.
CESG CHART:
There are 3 types of RESPs:
- Individual RESP Plan
- Family RESP Plan
- Group RESP Plan
1. Individual RESP Plan
An individual plan is intended to pay for the education of one beneficiary.
Anyone can open an individual plan and anyone can contribute to it. You can even open a plan for yourself. You usually don’t need to make a minimum deposit.
If the beneficiary doesn’t continue with their education after high school, you may be able to name another beneficiary.
Contributions:
- You decide when and how much money to put in, up to the lifetime contribution limit of $50,000 for a beneficiary.
- If you have an RESP with a financial institution, you decide how to invest your money. If you have an RESP with a scholarship plan dealer, your money is invested for you.
2. Family RESP Plan
A family plan can have more than one beneficiary. But each beneficiary must be:
- related to the person who opens the plan (for example, your children, grandchildren, brothers and sisters), and
- under 21 when you name them.
Contributions:
- You usually don’t have to make a minimum deposit when you open the plan.
- You decide when and how much money to put in, up to the lifetime limit of $50,000 for each beneficiary.
- If you have an RESP with a financial institution, you decide how to invest your contributions. If you have an RESP with a scholarship plan dealer, the money is invested for you.
Using the money for education:
- You decide how to divide the funds among the beneficiaries.
- If one of the beneficiaries doesn’t continue with their education after high school, the other beneficiaries can still use the money in the RESP.
Transferring RESP money among your children
You can transfer money between individual RESPs for siblings without any tax penalties. And, you do not have to repay any Canada Education Savings Grants (CESGs) if the beneficiary is attending post-secondary school. Proof of enrollment will be required at the time of withdrawal. The child who benefits must have been under 21 when the plan was opened.
3. Group RESP Plan
Group plans work differently from individual and family plans, and each plan has its own rules. They also tend to have higher fees and more restrictive rules.
You can open a group plan for one child. They don’t have to be related to you. You must make a minimum deposit when you open the plan.
If you change your mind
For all plans offered by scholarship plan dealers (including group plans), you have the right to withdraw all of your money within 60 days if you change your mind. After 60 days, you can get your money back, less any fees. Scholarship plan dealers are required to provide a prospectus that includes a short Plan Summary with the information you need.
Be sure to read and understand this document.
Click here for: Important Times/Limits to Remember
Click here for: RESP Frequently Asked Questions
Please contact our office for additional information.