SAVE FOR YOUR CHILDREN'S EDUCATION
The best way to secure your children's future is to sign up for a Registered Education Savings Plan (RESP), an investment program designed to help you finance your children's post-secondary studies. With an RESP, you can put money aside and let it grow in a tax-sheltered environment. When the designated beneficiary starts his academic program, we will make payments to him from the accumulated funds, so he can pursue his education.
CHOOSE THE TYPE OF RESP THAT MEETS YOUR NEEDS
One of the following two plans will be the right plan for your situation.
Individual plans
These plans are designed for one beneficiary and there are no restrictions as to who can be designated as a beneficiary. The plan has a maximum 35-year term and there is no age limit applicable to the beneficiary. You decide on the amount and frequency of your contributions and you can take a break from contributing at any time.
Family plans
These plans may include one or more beneficiaries who have to be related by blood or adoption to each subscriber. The maximum term for this type of plan is 35 years, but no beneficiary over 20 years old may be named. As with an individual plan, you decide on the amount and frequency of your contributions and you can take a break from contributing at any time.
WHO CAN SUBSCRIBE TO AN RESP?
According to the type of account, the subscriber may be a parent, grandparent, aunt, uncle, or other family member, friend or anyone who wishes to invest for a child's post-secondary education.
The subscriber must:
- be at least 18 years old
- be a Canadian resident
- have a social insurance number
Also, an RESP may be signed jointly by an individual and his or her spouse1. Subscribers must give the promoter their social insurance number and the social insurance number of each of the beneficiaries.
WHO CAN BENEFIT FROM THE PLAN?
The RESP beneficiary is the person to whom or for whom the promoter agrees to pay out educational assistance payments (EAP), if the person is entitled to receive them at the time they are issued.
For the purposes of the plan, the beneficiary must:
- be a Canadian resident
- have a social insurance number
TAKE ADVANTAGE OF THE CANADA EDUCATION SAVINGS GRANT (CESG)
One of the main advantages of an RESP is that you are entitled to receive the Canada Education Savings Grant (CESG). This grant, which came into effect at the beginning of 1998, and subsequently amended in the 2007 federal budget, represents 20% of the first $2,500 of annual contributions, up to $500 per year per beneficiary.
It is also possible to use unused grant room from previous years (until 1998, if the child was born). And the maximum amount under a CESG that may be awarded for each child born after 1997 is $7,200 for the duration of the plan.
HOW ARE THE PAYMENTS MADE?
Educational assistance payments (EAP) will be made to the beneficiary in keeping with the subscriber's instructions. The total EAP that may be paid out before the end of the first session of full-time studies (normally a period of 13 consecutive weeks) is $5,0002 ($2,500 in the case of part-time studies). Thereafter, if the beneficiary needs all the investment income and the entire grant the same year to cover tuition fees, there is no limit and the entire amount may be withdrawn.
RECOVERING THE FUNDS IF THE BENEFICIARY DOES NOT PURSUE POST-SECONDARY STUDIES
If the RESP beneficiary does not pursue post-secondary studies and if no other beneficiary is (or can be) appointed, the grants must be returned and the subscriber's contributions will be returned. Also, the subscriber may receive the income generated from the RESP in the form of an accumulated income payment, under certain conditions.
1 A trust may not serve as a subscriber.
2 The amount may be higher for certain programs known to have higher tuition fees.
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