Registered Education Savings Plans (RESP) 101

An RESP is a registered product created as a method of helping people save money toward their children’s education.

· As a registered product, all growth in the account is 100% tax sheltered

· There are two participants in an RESP – subscriber and beneficiary.
· Any child with a SIN number can be the beneficiary of an individual RESP plan. The lifetime RESP contribution limit is $50, 000.00. There is no annual limit.

· RESPs must be terminated by the end of the 35th year.

What points make these accounts different than other registered products?

· The money invested in an RESP is “after tax money.” That means that there is no contribution receipt, and no tax deduction.

· There may be joint subscribers, but they must be spouses and thus you can only have 2 on an account (for Family Plans or Individual Plans)

· Funds in US currency are not eligible in an RESP (CRA rule).

· When money is withdrawn for educational purposes, the grant and growth it is taxable in the hands of the beneficiary.

Taxation

· The money invested in an RESP is “after tax money.” That means that there is no contribution receipt, and no tax deduction.

· Contributions to a RESP are not tax-deductible. All interest, dividends and capital gains earned in the plan are tax free until the funds are paid out to the designated beneficiary. Capital withdrawals are not taxed, since capital withdrawals are just returning the original contribution (which was made with after tax dollars) to the investor.

· When grant or growth is withdrawn for educational purposes, it is taxable in the hands of the beneficiary.

Who Can Contribute?

Anyone can contribute, but they should be aware that all benefits/penalties are the responsibility of the subscriber. This differs from a formal trust, where the contributor is distinct from the registered owner.

Basic Roles

There are two participants in an RESP – subscriber and beneficiary. ***Trusts, estates and corporations may NOT be subscribers

Although it is rare, a subscriber can set up an RESP for themselves, however since they would have reach the age of majority to open the account, they would be too old to attract grant.

There may be joint subscribers, but they must be spouses and thus you can only have 2 joint owners on an account (for Family Plans or Individual Plans)

Subscriber

· The subscriber cannot be a trust or corporation. This means that an employer cannot contribute, as is done in some group plans.

· Individual Plan – for 1 beneficiary. The beneficiary does not need to be related to the subscriber.

· Family Plan – for 1 or more beneficiaries. The beneficiary must be either the subscribers: children, grandchildren, sibling (e.g. a sister opening an RESP with her younger sister as a beneficiary) or adopted children.

GRANTS OFFERED BY FEDERAL GOVERNMENT
Canada Education Savings Grant (CESG)
The CESG is the Canadian Educational Savings Grant. It is a subsidy paid by the canadian government to an RESP account based on eligible purchases in a calendar year. Grant payments are paid only on eligible purchases made after January 1, 1998.

Additional CESG (ACESG)
The Additional Canada Education Savings Grant (ACESG) is in addition to the basic CESG. The ACESG adds an additional 10% or 20% onto the first $500 or less contributed to the RESP annually. Eligibility is based on the Family Net Income of the Primary Caregiver.

Canada Learning Bond (CLB)
The Canada Learning Bond (CLB) is an incentive for low-income families to invest in their children’s education. Since 2004, a $500 CLB will be provided at birth or first year of eligibility for children in families that are entitled to the National Child Benefit Supplement (NCBS) – generally families with net incomes under $42,707 for 2012 (income levels will vary year by year). Additionally, these children will qualify for $100 for any subsequent year of eligibility up to and including the child’s 15th year, as long as their family is entitled to the NCBS.

PROVINCIAL GRANTS
Alberta Centennial Education Savings Grant (ACES)
Saskatchewan Advantage Grant for Education Savings (SAGES)
British Columbia Training and Education Savings Grant (BCTESG)
Quebec Education Savings Incentive (QESI)

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