An Intro to RESPs
Posted 14 Aug 2014 by Natalie LeBlanc
Registered Education Savings Plans (RESPs) are often a key vehicle to saving for your child’s education. RESPs provide tax-deferred investment growth along with access to the Canada Education Savings Grant (CESG), and can be opened as a family, or for one child (the beneficiary of the plan and future student).
First, let’s go over some of the basic rules for RESP administration:
- Each beneficiary of an RESP is allowed to have $50,000 contributed to their name within their lifetime. There are no longer (as of 2007) annual contribution limits;
- Each beneficiary is entitled to the basic CESG of 20% of your annual contribution, up to $500 per calendar year;
- The plan owner (in most cases the parents or grandparents) do not have to pay tax on withdrawals of their previous contributions;
- Educational Assistance Payments (EAPs) are withdrawals of the CESG money and earnings on the contributions invested in the RESP which are paid out, and taxable (T4As are issued), to the student;
- EAPs may only be paid when the beneficiary is enrolled in a qualifying educational program (proof of enrollment is usually required);
- EAPs are limited in the first semester of study (13 weeks) to $5,000 for “qualifying” programs (at least 10 hours per week), and $2,500 for “specified” programs (at least 12 hours per month).
The CESG is certainly one of the most attractive reasons to open an RESP. Other investments may not have such strict withdrawal rules, but the RESP gives access to up to $2,500 in grant money for your child’s education! Of course, there are rules here as well:
- CESG is applied only until the end of the calendar year in which the beneficiary turns 17 – after this point it is expected they will begin post-secondary education/withdrawals;
- Additional CESG (up to an additional 20% on the first $500 contributed, or additional $100 per calendar year) is available for families with net income under $87,123;
- CESG is only available if the plan is opened:
- with at least $2,000 before the year the beneficiary turns 16
- with $100 contributed per year in any four years (not necessary consecutive) before the year the beneficiary turns 16;
Some provinces (Alberta, Quebec, and Saskatchewan) have additional grants and incentives for RESPs. Check out the CRA’s website for more information on these.