Registered Education Saving Plans (RESP)
As a concerned parent, one of your top priorities is to ensure that your child receives the best education possible. However, the cost of post-secondary education can be quite high and it's important to start planning and saving for it early on. RESP’s offer tax-deferred growth on contributions and the government provides additional incentives through the Canada Education Savings Grant (CESG), which matches 20% of the first $2,500 in contributions made each year up to a lifetime maximum of $7,200. The funds in an RESP can be used to pay for qualified education expenses, including tuition, books and living expenses. Parents, grandparents, or other relatives can open an RESP for a child and anyone can contribute to the plan, up to a lifetime maximum of $50,000 per beneficiary.
Individual RESP (iRESP)
This type of RESP allows a single beneficiary, typically one child, to be named. Contributions can be made by anyone, such as parents, grandparents, or other family members. The contributions grow tax-free until they are withdrawn for educational purposes. However, if the beneficiary does not pursue post-secondary education, the contributions may be returned to the subscriber, while the accumulated earnings are subject to taxes and potential penalties.
Family RESP (fRESP)
A family RESP allows multiple beneficiaries, usually siblings, to be named within the same plan. This type of RESP offers flexibility, as the educational savings can be shared among the beneficiaries. Contributions made to a family RESP also grow tax-free until withdrawn for educational purposes. Similarly, if a beneficiary does not pursue post-secondary education, the contributions may be returned to the subscriber, while the accumulated earnings are subject to taxes and potential penalties.
Group RESP (gRESP)
A Group RESP is a savings plan that involves multiple participants pooling their contributions into a common investment fund. These plans are typically offered by group scholarship plan dealers or scholarship plan dealerships. Participants make regular contributions into the plan, and the contributions are invested by the provider. The accumulated funds are then distributed among the beneficiaries for their post-secondary education.
It's important to note that the specific product highlights and features can vary depending on the financial institution or RESP provider. It's recommended to carefully review the terms, conditions, fees and investment options associated with each RESP product before deciding. You can consult with our financial advisor to receive personalized guidance based on individual circumstances and goals.
Receive contributions from the government
The government offers free money to families who open a Registered Education Savings Plan (RESP) for their children. Families can contribute up to $50,000 per child, and the government will add 20% of the contribution, up to a maximum of $500 per year and $7,200 in total. Additionally, low-income families may be eligible for the Canada Learning Bond, which provides up to $2,000 to an eligible child's RESP without requiring any personal contributions. Eligibility for the bond is determined based on the number of children in the family and the family's income, with a maximum income limit of $50,197 for families with one to three children.
Tax-deferred Growth
One great advantage of RESPs is that any earnings generated within the account, such as interest, capital gains and dividends, are tax-deferred until the funds are withdrawn. This means that as long as the money stays in the savings plan, you won't have to pay taxes on the growth. This can lead to significant growth in the savings, particularly when combined with the government grant and compound returns. As a result, RESPs can be an excellent way to help your children's education savings grow quickly while minimizing the impact of taxes on their earnings.
Free to pick your suitable educational institution
RESP’s are not designed for students who go to universities alone. They are for different types of students under different cadres like students attending colleges, trade schools, CEGEP and apprenticeship programs too. RESP can finance a wide range of programs through its funds like training for hair and esthetics, vehicle maintenance, dance, music, fashion, naturopathy, dental hygiene as well as early childhood education.
Covers more than just tuition fees
After your child has enrolled in any programme you just have to show the proof of enrollment to withdraw from their RESP using Educational Assistance Payments (EAPs). The initial amount that can be withdrawn from their RESP is $5000 until they have completed 13 weeks of their course. The money obtained need not necessarily be used for tuition fees alone, it can contribute to any reasonable expense related to their education like books, housing, transportation or research.
Ultimately the subscriber makes contributions to the RESP on behalf of the beneficiary, the promoter manages the RESP and invests the contributions, and the beneficiary eventually receives the funds to pay for their education.
- A subscriber enters into an RESP contract with the promoter and names one or more beneficiaries under the plan.
- The subscriber makes contributions to the RESP and government grants (if applicable) will be paid to the RESP.
- The promoter administers all amounts paid into the RESP and as long as the income stays in the RESP, it is not taxable.
- The promoter can return the subscriber's contributions tax-free if they are not paid out to the beneficiary.
- The promoter can make payments to the beneficiary to help finance their post-secondary education, in the form of educational assistance payments (EAPs).
- The promoter can also make accumulated income payments to the beneficiary.
- Beneficiaries have to include the EAPs in their income for the year in which they receive them, but they do not have to include the contributions they receive in their income.
- The Canada Revenue Agency registers the education savings plan contract as an RESP and lifetime limits are set on the amount that can be contributed for each beneficiary.
- Unless the RESP is a specified plan, no contributions (except transfers from another RESP) may be made to the plan after the end of the year that includes the 31st anniversary of the opening of the plan. The plan has to be completed by the end of the year that includes the 35th anniversary of the opening of the plan.
