RESP

The annual cost of a post secondary education now ranges from $3500 to $13,500. As such, the federal government has developed a Registered Education Savings Plan to assist parents with the funding of their child's post-secondary education. The plan is designed for parents saving for their young children, but there is no age limit for opening an RESP — you can name yourself or another adult as the beneficiary of the plan.

An RESP allows savings to grow tax-free, until the beneficiary attends post-secondary school. RESP contributions also qualify for government money through the Canada Education Savings Grant (CESG) which will top up the plan by adding 20% of your contribution. For example, if your annual contribution is $2000, they will contribute $400. The maximum contribution is $500 a year based on your contribution of $2500. These grants only apply to RESPs set up for children 17 or younger with a maximum lifetime limit of $7 200

If the RESP beneficiary does not end up going to school, there are a few options as to what to do with the RESP funds.  The assets can be transferred to another RESP, RRSP, or taken out with interest.  In any of these cases, the CESGs are forfeited and must be repaid.  Subscriber contributions can be refunded tax-free to either the subscriber or beneficiary after all of the CESGs and other possible fees are repaid.  Earnings on the contributions may be forfeited depending on the plan, but may also be paid back to the subscriber in the form of Accumulated Income Payments (AIP).  Residents of Canada may receive these payments, but will face income taxes and an additional 20%.  These taxes are avoided if AIPs are transferred to the RRSP of the subscriber or their spouse.

The lifetime limit for an RESP on a per child basis is $50 000 with no annual limit.  Excess contributions are penalized by 1% per month, and could lead to the registration being revoked.  However, large lump sum deposits would forfeit some of the grant opportunities.

For more information on RESPs, we encourage you to have a look at the following:

Toronto Star: Parents getting a lesson in RESPs

Calgary Herald: Even older children can benefit from RESPs

Williams Lake Tribune: RESP or TFSA?