Saving For Your Children’s Education With an RESP

Simply put, an RESP is an investment account used to save money for a child’s educational needs beyond high school. Features of RESPs make them a particularly attractive way to plan for your family’s future:

• Similar to RRSPs, RESPs are tax-sheltered Money earned inside an RESP isn’t taxed until it’s taken out of the account. At that time, it’s taxed in the hands of the student, whose income will probably be low enough that they won’t have to pay any taxes on the money.
• The federal government matches 20% of RESP contributions up to $500 per child each year under the Canada Education Savings Grant (CESG). There’s a maximum CESG of $7200 per child over the life of the plan.
• Additional grant money is available for low-income families under the Canada Learning Bond (CLB). Some Canadian provinces provide additional grant money for their residents (Quebec, British Columbia, and Saskatchewan currently have programs).
• RESPs are for adults too! You won’t be eligible for government grants, but if you want to continue your education down the road, you can accumulate money in an RESP and use it when you’re back in school, and your income is lower.

• Any Canadian can open an individual RESP for a child, even those unrelated to the child. Childcare agencies can also open RESPs for them.
• Family plans can be shared between siblings. These plans can only be opened by people who are related to the beneficiary.
• Group plans are pooled investments that usually require fixed monthly payments. Proceeds of these plans are shared among the beneficiaries of the group and are based on the number of beneficiaries in the group. Group plans have more limitations than individual and family plans, so be sure to go over the details with your provider.
• The funds can be held in a wide variety of investments, depending on the provider. You can use them to hold mutual funds, term deposits, stock and bonds, and savings accounts.
• Funds can be used for any education-related expenses: tuition, fees, books, housing, transportation, or living expenses. If the beneficiary gets a scholarship that covers their tuition, for example, the money can be directed to any of these other costs.
• You can contribute any amount to an RESP at any time, up to a lifetime maximum of $50,000 per beneficiary for all their RESPs combined.
• If you can’t contribute in a given year, eligibility for the CESG portion can be carried over to the following year.

Fortunately, your child has a lot of time to decide if they want to continue their studies. An RESP can stay open until the end of its 35^th year.

• At the end of the 35^th year, the account must be closed, and the amount in it goes back to the original contributor.
• Amounts contributed by federal and provincial governments must be returned to them
• Accumulated earnings can be given to the contributor, transferred to the contributor’s RESP or a child’s Registered Disability Savings Plan, or given to an educational institution as a donation.

Opening an RESP early in your child’s life will allow you to save up to the maximum amount and take advantage of the government grants. However, you should consider all the ways you can protect your family from income fluctuations, including buying life insurance.