What is an RESP?
An RESP is a tax-deferred education savings vehicle through which the federal government allows a subscriber to save money for a beneficiary’s post-secondary education. This money can be used to cover any costs associated with their education at that time.
Types of plans
An RESP can be set up as either an Individual Plan or a Family Plan
Individual Plans can be opened by any subscriber, whether or not they are related to the child beneficiary, however, only one beneficiary can be named on the plan.
Family Plans can have one or more beneficiary but they must be under the age of 21 and related to the subscriber.
Although contribution and grant limits still apply to each beneficiary, the benefit of a Family Plan is that the money within the plan can be shared; so if one child chooses not to attend post-secondary school, the grants can be used by any of the other children within the same plan.
Is there a maximum RESP contribution limit?While there is no annual maximum contribution amount for a beneficiary, there is a lifetime limit of $50,000.
What is the Canada Education Savings Grant (CESG)?
The government introduced the Basic and Additional CESG to promote savings for a child’s education and to give a boost to RESPs. The Basic CESG is equal to 20% of the annual contributions, to a maximum of $1,000 per year, per beneficiary. The Additional CESG is available to assist lower-income families.
Unused contribution room can be carried forward each year.
From 1998-2006, $400 of Basic CESG was accumulated annually.
From 2007-onwards, $500 of Basic CESG was accumulated annually.
The maximum amount of CESG that can be received is $7,200 per beneficiary.
Is there an age limit to receive the CESG?
In the calendar years they turn 16 and 17, beneficiaries can only receive the CESG if:
A minimum of $2000 of contributions have been made for that beneficiary before the calendar year they turn 16, or,
A minimum of $100 of annual contributions has been made in any four years before the calendar year they turn 16.
What is the Canada Learning Bond (CLB)?
The CLB is another government program available to every child born in or after 2004.
The CLB offers up to $2000 for a child’s RESP, paid into the plan over several years, and does not require any contributions to be made into the plan.
What is the BC Training and Education Savings Grant (BCTESG)?
Available to beneficiaries born in or after 2006 and who are BC residents.
No contributions required to receive this one-time grant of $1,200.
Application must be filed between beneficiary’s 6th and 9th birthday.
How are RESPs taxed?
Unlike RRSP contributions, contributions made to an RESP are not tax-deductible.
The tax advantage of RESPs is that all income, growth, and government grants are tax-deferred until they are withdrawn from the plan.
When funds are withdrawn from the plan to be used for educational costs, the grant and growth is taxed in the hands of the beneficiary. As he or she will likely be in a low income bracket while attending school, there will likely be little or no tax payable on this amount.