The registered education savings plan (RESP) is an ideal financial tool to help your child get off to a strong start in life. The RESP allows you to amass and grow your savings in a tax-sheltered environment, take advantage of generous government grants and therefore build a better tomorrow for those you hold most dear. With the Diploma RESP, you can start building a bright future for your closest loved ones today.
Beneficiaries generally receive the contributions and the EAPs from the promoter. They have to include the EAPs in their income for the year in which they receive them. However, they do not have to include the contributions they receive in their income.
The subscriber generally makes contributions to the RESP. Subscribers cannot deduct their contributions from their income on their income tax and benefit return.
The provider or promoter usually pays the contributions, and the income earned on those contributions, to the beneficiaries. The income earned is paid as EAPs.
Canada Education Savings Grant (CESG) - Employment and Social Development Canada (ESDC) provides an incentive for parents, family, and friends to save for a child's post-secondary education by paying a grant based on the amount contributed to an RESP for the child. The Canada education savings grant (CESG) money will be deposited directly into the child's RESP.
However, to maintain the previous grants, the new beneficiary must meet one of the following conditions:
Canada learning Bond (CLB) - Employment and Social Development Canada (ESDC) provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child's education after high school (post-secondary education).
The Canada Learning Bond (CLB) money will be deposited directly into the child's RESP.
The CLB is available for children from low-income families born in 2004 or later and provide an initial $500 for the first year the child is eligible, up to age 15, plus $100 for each additional year of eligibility, up to 15 years for a maximum of $2,000.
Children who are in care of a public primary caregiver of whom a special allowance under the Children's Special Allowance Act is paid, are also entitled to the CLB.
If the beneficiary does not pursue post-secondary education, the CLB is returned to the government.
Educational assistance payments (EAPs), which are made up of grants received and plan returns since inception, are paid to your child. During the first 13 weeks of your child’s studies, the maximum EAP that can be paid is $5,000. After that, no limit is imposed.
Parents, grandparents, godparents, uncles, aunts, and friends... anyone can open an RESP for a child, and a child can be the beneficiary of multiple RESPs.
If a number of you are contributing money for a single child, you’ll need to make sure you stay within the governmental contribution limits to avoid any tax penalties, since the maximum contributions are determined per child.
You can designate any child you wish, and you don’t have to be related to that child.The beneficiary's social insurance number (SIN) is given to the promoter before the contribution is made and the beneficiary is a resident of Canada.
You also have the option to change beneficiaries once the plan is in force. Contributions can then continue to be made up to the end of the plan term determined according to the age of the new beneficiary.
The maximum lifetime contribution is set at $50,000 per child and there are no annual contribution limits. This means you can tailor your contributions as your budget allows, provided you stay within the lifetime maximum permitted per child.
The federal government has created the Canada Education Savings Grant (CESG) to encourage parents to invest as early as possible in their children’s postsecondary education.
The CESG at a glance
Annual grant: 20% of annual contributions
Annual limit: $500
Lifetime maximum per child: $7,200
Some provinces offer their own grant programs in addition to the CESG.
The federal and provincial grants are paid directly into the RESP and grow along with your own contributions. These little extras can provide a big boost to your savings.
If your child decides not to pursue postsecondary studies, you may:
Designate a new beneficiary
Withdraw the money
Transfer the money into your RRSP
Make a donation to an educational institution