What is an RESP?
Initiated by the government, it is a smart way to save for your children’s or grandchildren’s post-secondary education. It allows contributions from parents, grandparents, friends, and relatives at any time. An RESP can be created for a maximum of $50,000 per child.
Another benefit of starting an RESP is that the federal government contributes 20% of the amount contributed by you. This facility is available under the CESG or Canada Education Savings Grant and is available for $500 per year to a total of $7200 per child. This grant allows higher contributions for low-income families.
The Registered Educations Savings Plan also offers tax-deferred growth. Until you use the amount, you will not have to make any tax payments on the amount. Even if there is remaining income, you can get them back tax-free if you convert it to an RRSP or any other such plan.
An RESP is suitable for you if:
You want to provide your child or a loved one with the opportunity to get a post-secondary education.
You want to avail the benefits of the Canada Education Savings Grant and other such government programs.
You want to provide your child or a loved one with a tax-efficient account. The RESP account can store the amount received on special occasions, which can help them achieve a post-secondary education later in life.
Types of RESPs available:
Family RESP Plan:
A parent or grandparent can set up a Family Registered Education Savings plan. The plan holder must be related to the beneficiaries. They can add children, grandchildren, stepchildren, and adopted children to the plan.
The beneficiaries added to the plan must be legal siblings. Doing so will help them receive the CESG benefits. It can also be helpful in circumstances where the elder sibling does not end up utilizing the money for their secondary education. The money can then be transferred to the other beneficiaries.
The amount in this plan does not have to be split equally among all children. Depending on their educational preferences, the amount can be utilized.
Individual RESP Plan:
This type of RESP does not have any age limit or relationship restrictions. It can be opened by a friend or anyone looking to support someone important to them. The plan can even be opened for the individual themselves.
What does the plan holder control?
For both the individual and family RESP plan, the plan holder can control how the money that is accumulated is invested, how the beneficiary receives payments and how much they can receive at any given time.
The plan holder has full control in terms of the movement and accumulation of funds.
RESP Grants and Contributions:
What is the contribution limit for an RESP?
The total lifetime limit for an RESP is $50,000. This amount is cumulative of contributions made by the plan holder or other contributors and does not include the amount contributed by the government or by any grants. This means that if there have been contributions of $50,000 in the RESP, by the time any withdrawal is made, there may be more in the plan than that. There are no limits to the amount that can be contributed in a year.
What is the Canada Educations Savings Grant (CESG)?
A grant program started by the Federal government; the plan is designed to help Canadians save for their post-secondary education. As per the program, the government contributes 20% of the amount you have contributed. This goes to a limit of $500 per year, and a total of $7200, per beneficiary. In the situation where a family’s income is on the lower end, the government may offer a bigger grant.
What is the Québec Education Savings Incentive (QESI)
Designed to encourage families living in Québec to start saving early for the education of their children or grandchildren, the QESI is a refundable tax credit plan. It is deposited directly into the RESP.
The RESP must be opened with a provider that offers the QESI. The trustee of your RESP must apply to Revenue Québec to claim the credit.
What is the British Columbia Training and Education Savings Grant (BCTESG)
It is a $1200 grant that can be utilized by families living in British Columbia. The RESP must be opened by a person living in British Columbia, and the beneficiary must also be living in British Columbia. The birth year will also be a factor that is considered for eligibility. The grant can be applied for when the child is 6 to 9 years of age. The birth year will also be a factor that is considered for eligibility.
What is the Canada Learning Bond?
The CLB or Canada Learning Bond is another program initiated by the federal government to assist low-income families. This program contributes a total of $2000 to the RESP you have created, even if there has been no money saved by you in the RESP. The CLB is not offered by all RESP providers. To be eligible for the CLB, you must have qualified for and received the Canada Child Benefit.