Getting a head start by saving smart for tomorrow's dreams
Get a head start on your child’s education by preparing for a child's future by starting to save for their education today. Registered Education Savings Plans (RESPs) are becoming as essential in saving for a child's education as RRSPs are for retirement.
Benefits of RESPs
Save more, faster, with up to $7,200 in matching contributions from government grants. Plus, it doesn’t count toward your contribution room.
You don’t pay tax on any investment income. Also, since withdrawals are taxed in the hands of the student, who’s typically in the lowest tax bracket, this usually means little or no tax will be paid.
Start sooner to save more - all you need is your child’s Social insurance Number (SIN). You can also change beneficiaries if one child decides not to continue their education.
What you need to know about contributions and withdrawal
Good news! With an Registered Education Savings Plan, the government wants to give you money to make it easier for students to attain a post-secondary education without going into massive debt. This is what you need to know about your contribution to making this happen.
- Maximum contribution: The lifetime maximum is $50,000 per beneficiary
- Who can contribute: Anyone can contribute to an RESP
- How long you can contribute: You can contribute for up to 31 years after you open an RESP
You can request RESP payments to cover expenses for the account’s beneficiary once he or she starts a post-secondary education. These expenses can include things like tuition, textbooks, room and board.
Only the person who set up the account and made contributions, known as the subscriber, can make withdrawals – not the beneficiary.
- In order to make a withdrawal you must provide proof that the beneficiary has enrolled at a post-secondary institution. There are 2 types of withdrawals:
- withdrawals of contributions from the subscriber, called Post-Secondary Education Payments (PSE)
- withdrawals of government grants, known as Education Assistance Payments (EAP).
- EAP withdrawals can only be sent to the beneficiary.
- There’s no maximum for the amount you can withdraw from PSE contributions.
- For EAP contributions, you can withdraw a maximum of $5000 during the first 13 weeks of schooling.
Taxes on withdrawals:
- PSE withdrawals aren’t taxable.
- The student will be taxed on EAP withdrawals. Your financial institution issues a T4A tax form in the student’s name for EAP payments.
The specific grants and programs you qualify for depends on where you live, your family income, how much you contribute, and how early you started the RESP. Here are two federal programs to take a look at:
Canada Education Savings Grant (CESG)
- With the CESG, the government contributes to your RESP by matching 20% on a maximum of $2,500 in annual contributions until the beneficiary turns 17. This gives you up to $500 per year in free money.
- The lifetime CESG maximum is $7,200 per beneficiary. Families with lower incomes may be eligible for additional contributions. CESG rules also allow you to carry forward unused contribution room to later years.
Canada Learning Bond (CLB)
- The CLB provides up to an additional $2000 in grant money per beneficiary over the life of an RESP. To qualify, the beneficiary must be born on or after January 1, 2004, and the family’s net income must meet certain requirements.
- Eligible beneficiaries receive an initial grant of $500 and later grants of $100 in each year that they are eligible. An RESP must be opened to receive the CLB; however, you don’t have to make any contributions to the RESP to receive CLB grant money.
Frequently Asked Questions
The subscriber (the person who opened the plan) owns the funds within the RESP. An RESP can be opened by an individual or joint subscribers who are spouses.
The majority of Canadian post-secondary institutions and programs qualify for receiving RESP payments. Some post-secondary institutions outside Canada may also qualify, but this isn't guaranteed.
If the beneficiary chooses not to pursue post-secondary education, one of three things must happen:
- You change the plan's beneficiary (e.g. to a sibling)*
- You transfer funds to another RESP*
- You close out the plan completely*
NOTE: If you choose to close the plan you will have to return any government grant money. Since the RESP contributions belong to the subscriber, these can be withdrawn from the RESP without penalty.
*Some restrictions and/or penalties may apply.
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*Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds are offered through Credential Asset Management Inc.