There are many benefits to saving for your child's post-secondary education with a Registered Education Savings Plan (RESP):
1. The money is there when you need it
We make it easy to start early and contribute regularly, with a minimum of $25 a month. You will have the funds when you need them for your child's education.
2. Government contributions
The federal government may add to your RESP contributions (up to a maximum of $500 per year, per child) with the Canada Education Savings Grant (CESG). The CESG is payable until the end of the calendar year a child turns 17, and the maximum lifetime CESG payment is $7,200. Additional grants may be available depending on your financial situation and your province of residence.
3. Tax-sheltered Growth
Although contributions are not tax-deductible, all investment income generated in the RESP is tax-sheltered as long as it remains in the plan.
You can decide how much money should be withdrawn and when it should be withdrawn. The withdrawals can be used for a variety of education costs, including tuition, books and living expenses.
5. Tax savings
When money is withdrawn and used to pay for the child's post-secondary education, the plan earnings and government contributions are taxed in the child's hands. As a student, the child may pay little or no taxes on the money.
Types of RESPs:
Family plan RESP
With a family plan, you (the subscriber) can name more than one child as a beneficiary of the plan. Each beneficiary must be your child, grandchild, great-grandchild or sibling, by birth or adoption. If the child for whom the plan was originally intended decides not to go on to postsecondary education, the funds can be transferred to another child in the plan.
Individual plan RESP
These plans allow for only one child to be named as beneficiary. He or she does not have to be related to you.
What if the child does not pursue higher education?
If you have a family plan, you can use the earnings to pay for the education of another child the plan. With an individual plan, you may have the option of naming another beneficiary, but the total CESG may have to be returned to the federal government.
If no beneficiary chooses to pursue higher education, you may be able to transfer up to $50,000 tax-free from the RESP to your RRSP subject to these special conditions:
- The RESP must have been in effect for at least 10 years
- All RESP beneficiaries must be at least 21, and not currently seeking higher education
- You must be a Canadian resident
- In addition, normal RRSP contribution limits apply. If you do not have sufficient RRSP contribution room, you may be able to withdraw plan earnings, however, some restrictions and additional taxes may apply.
Other useful RESP information:
- In order for an RESP to receive the federal government's CESG, the child named in the RESP needs a Social Insurance Number.
- For an RESP mutual fund account comprised of individual funds, government assistance is paid into the plan monthly and deposited directly to CIBC Money Market Fund. For an RESP mutual fund account comprised of a portfolio, government assistance is paid into the plan monthly and is allocated proportionately to the various mutual funds in the portfolio.