Registered Education Savings Plans (RESP)
Registered Education Savings Plans (RESP)
General
- The subscriber of an RESP plan makes contributions for a beneficiary (usually their children or grand-children) to help save for post-secondary education.
- Unlike the RRSP, contributions made for an RESP are not deductible
- There is a life-time contribution limit of $50,000 per child; however, there are no limits to how much a person can contribute in a given year.
- RESP’s generate interest income and grants which are taxed in the hands of the beneficiaries (the children)
Special Grants under RESPs
If you are saving for a child’s education, the Government of Canada provides special saving incentives only available if you have an RESP.
1. Canada Education Savings Grant (CESG)
- This is provided to everyone who saves for education; regardless of income level
- The government pays a grant based on the amount contributed to an RESP for the child.
- The government will deposit the CESG directly into the child’s RESP.
- The government will contribute 20% of your annual contributions to all RESPs to a maximum CESG of $500 for each beneficiary; for a lifetime limit of $7,200 for each beneficiary.
- Therefore to get the full $500 per year, must contribute $2,500 per year.
- Some beneficiaries may qualify for additional CESG, if they are from lower income families
2. Canada Learning Bond (CLB)
- Incentive of up to $2,000 to helpmodest-income families
- deposited directly into the child’s RESP.
What if the beneficiary does not end up pursuing a post-secondary education?
- The principal amount is refunded tax free
- The additional income earned in a RESP is taxed
- The government takes back the CESG
- RESP can be transferred to a sibling of the beneficiary on a tax free basis provided that the sibling receiving the RESP is under 21 years of age before the transfer is made