REGISTERED EDUCATION SAVINGS PLAN (RESP)

Parents, grandparents, godparents, uncles, aunts and friends… anyone can open an RESP for a child, and a child can be the beneficiary of multiple RESPs.

If a number of you are contributing money for a single child, you’ll need to make sure you stay within the governmental contribution limits to avoid any tax penalties, since the maximum contributions are determined per child.

The maximum lifetime contribution is set at $50,000 per child and there are no annual contribution limits. This means you can tailor your contributions as your budget allows, provided you stay within the lifetime maximum permitted per child.

The maximum lifetime contribution is set at $50,000 per child and there are no annual contribution limits. This means you can tailor your contributions as your budget allows, provided you stay within the lifetime maximum permitted per child.

The federal government has created the Canada Education Savings Grant (CESG) to encourage parents to invest as early as possible in their children’s postsecondary education.

• Annual grant: 20% of annual contributions
• Annual limit: $500
• Lifetime maximum per child: $7,200

If your child decides not to pursue postsecondary studies, you may:

• Designate a new beneficiary
• Withdraw the money
• Transfer the money into your RRSP
• Make a donation to an educational institution

The government of Canada also provides a Canada Learning Bond (CLB) to encourage low-income families to contribute to an RESP. Families with children born on or after January 1, 2004, and who receive the National Child Benefit, will receive an additional $500 CLB when they open an RESP and $100 for each year they remain eligible.

Any principal contributed to the RESP can be withdrawn at any time by its contributor. In this case, any eligible CESG payments on those contributions must be repaid to the Government. If the beneficiary has also received additional CESG, none of the beneficiaries in the plan will be eligible for additional CESG for the next two years.

If the student elects to not attend a post-secondary institution, any accumulated interest may be withdrawn by the contributor; this is called an AIP (Accumulated Income payment). To receive this AIP, the plan must be in place for at least 10 years and all beneficiaries must be over 21 years old. This AIP is taxed as income unless it is rolled into a registered retirement savings plan (RRSP), subject to individual contribution limits and applicable rules.

In group RESPs (otherwise known as Group Scholarship RESPs), individual contributions are pooled with those of other contributors. Contributions to the plan are made according to a set schedule for the duration of the RESP contract. In a pooled group plan, the interest that is left behind from cancelled RESPs gets paid out with the matured plans. This excess “interest” is also called attrition.