Registered Education Savings Plan
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A Registered Education Savings Plan (RESP) is a government-approved plan for the purpose of providing post-secondary education funding for a beneficiary. Income earned within the plan is not taxed until it is withdrawn.
Introduction
A post-secondary education is critical in an increasingly competitive job market. Each year, fewer high school graduates are in a position to afford to continue their education. With the costs of higher education increasing by up to 10% every year, early planning is essential.
Average Cost of University Education:
- 1962 - $6,894
- 1998 - $60,842
Advantages of an RESP
- The Canadian Education Savings Grant provides additional education funding.
- Income earned within the plan is not taxable until the beneficiary enrolls in post-secondary education and withdraws funds for educational purposes. The beneficiary will usually have a lower marginal tax rate.
- Long-term planning for a beneficiary to attend a post-secondary institution.
- RESP contributions may be used by the subscriber as collateral for a loan.
- RESPs are available as single or family plans.
- Investing in an RESP will assist your family to have more financial freedom to choose their future. By starting now, you can grow your education funds by making affordable, convenient monthly deposits. Planning tody for tomorrow is the smart way to realize your family's education goals.
RESP Contribution Limits
- Annual - $4,000 per beneficiary
- Lifetime - $42,000 per beneficiary
Deposits
The subscriber is the registered owner of the plan and can be an individual or an individual and his/her spouse. Only the subscriber can make contributions to an RESP and these contributions are not tax deductible.
Beneficiary
The named beneficiary is eligible to receive the Educational Assistance Payments from the plan. There is a limit of one beneficiary per plan, except under a Family Plan, which provides for multiple beneficiaries. The beneficiaries of a Family Plan must be "related" to the subscriber(s). A social insurance number for the beneficiary is required.
Canada Education Savings Grant
The CESG program allows eligible RESP beneficiaries to receive grant monies based on the annual contributions paid into the plan. The government will contribute 20% annually on the first $2,000 deposited into an RESP for children up to age 18*.
All children under the age of 18* and resident of Canada automatically accumulate CESG contribution room.
- Annual CESG Maximum: $400 per beneficiary
- Lifetime CESG maximum: $7,200 per beneficiary
*Note - Some restrictions apply for RESP beneficiaries' age 16 and 17.
Educational Assistance Payments
Educational Assistance Payments may be drawn from the RESP to cover expenses associated with the pursuit of higher education in a qualified program - tuition fees, textbooks, room and board, etc. These payments are taxable to the beneficiary.
If Beneficiary Doesn't Enroll in Post-Secondary Education
If the beneficiary does not enroll in post-secondary education, you have the following options for the plan:
- Change the Plan Beneficiary - Transfer funds to another RESP where you are the subscriber.
- Collapse the Plan - If you choose this option, you will have to return the unused CESG monies to the government. The principal monies are considered a refund of contributions and can be withdrawn without penalty.
The following options are available for disbursement of income earned within the plan:
- Transfer funds to the subscriber’s RRSP
- Withdraw the funds
- Transfer funds to a Designated Educational Institution
Qualified Post-Secondary Institutions
Most Canadian post-secondary institutions and programs, including correspondence courses, qualify for the purpose of receiving RESP Educational Assistance payments. Certain foreign post-secondary institutions may qualify.
For more information on any of the Registered Education Savings Plans, drop in to your local branch or give us a call.
