• Laurie Chermaz

BACK TO SCHOOL TODAY (yippee!!)....SO let's talk about RESPs

With the kids going back to school today, it's the perfect time to discuss saving for their future educational needs. So, what is an RESP exactly?

A Registered Education Savings Plan (RESP) is a dedicated savings plan to help you save for a child’s education after high school

Most RESPs are opened for children, but you can open an RESP for yourself or another adult. The person who opens the plan is called the subscriber.

When your child enrolls in post-secondary education, they can start taking payments, called educational assistance payments (EAPs) from their RESP. EAPs are made up of the investment earnings and government grant money in the RESP. The person who is named to receive EAPs under the plan is called the beneficiary.

7 things to know about RESPs

1. Your savings grow tax free. There is no tax on the investment earnings, as long as they stay in the plan.If you save for a child age 17 and under, the federal government also puts money into the RESP as a grant or bond. In some provinces, the provincial government may contribute too.

2.You can usually put money in whenever you want, up to a lifetime maximum of $50,000 per child. But some plans require set monthly or annual contributions.

3.The contributions are not tax deductible. But you can withdraw them tax free from the plan at any time for any reason.

4. There is a wide range of investment options available for RESPs. Examples: stocks, bonds, mutual funds, GICS. Some plans let you decide how to invest your savings. Others invest your money for you.

5. Your child can take money out of the RESP when they enroll in university or college or specified education program.

6. An RESP can stay open for up to 36 years.

7. Under specified plan rules, the plan can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.

Canada Education Savings Grant

Your child will qualify for the CESG until the end of the year they turn 17. The lifetime limit for the grant is $7,200 for each child. If your child doesn’t continue with their education after high school, you can’t keep any of the grant money. You must return it to the government.

However, you can transfer money between individual RESPs for siblings without any tax penalties and without having to repay any CESGs. This applies to transfers that take place after 2010. The child who benefits must have been under 21 years old when the plan was opened.

Basic CESG

Each year, the government will match your contribution by 20%, up to a maximum of $500 for each child. You need to contribute $2,500 a year to get the full grant of $500 each year. Your child can carry forward unused grant contribution room until they turn 17.

Additional CESG

Depending on your income, the government may top up your contribution by an extra 10% or 20% on the first $500 of annual RESP contributions made on or after January 1, 2005.


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