The second article that I ever wrote for RCU Speak was about RESPs. You can find it here. RESPS are probably the best investment option to save for a child’s education, and I would hope every parent/grandparent would look into them to save for their children’s future.
The basics of a Registered Education Savings Plan are:
- Contributed money grows tax deferred, so it is not taxed until it is withdrawn, usually when the student is in a low tax bracket.
- With each contribution, up to defined limits, the RESP will receive a bonus from the government of 20% to 40%, depending on the family’s income. This bonus also earns interest.
- An RESP can be opened for a person at any age, but can only remain open for a maximum of 26 years. The CESG is only available if the beneficiary is 17 years old or less.
- The Canada Education Savings Grant provides anyone who invests in RESPs with an amount equal to 20% of yearly contributions, up to an annual maximum of $500 per child (and to $1,000 from $800 if there is unused grant room from previous years) to a maximum of $7,200.
- There is a maximum lifetime contribution limit of $50,000. If you contribute more than $2,500 per year ($5,000 if there is unused room), you only receive the above mentioned amount from CESG per year, but the whole contribution grows tax sheltered.
- The child/children who is the beneficiary(ies) of the RESP must have a Social Insurance Number from the government to have an RESP.
- In Alberta, children born since 2005 are eligible for an additional $500 from the Alberta Centennial Education Savings (ACES) Plan with anotehr $100 at ages 8,11, & 14 with application.
- You can have a plan registered to a child individually, or to a family.
- -In a family plan the children must be related to you. Any of the children can access funds from the plan.
- -In an individual plan, the recipient does not have to be related to you, and the plan is transferable to someone else
- If your child does not go to school, an RESP can be converted into an RRSP. There are tax rules that you will have to deal with concerning the grants.
Thank you for bringing attention to RESP's, but I would like to correct a couple of points regarding eligibility. In the 2008 Federal Budget, the maximum contribution age was increased from 21 to 31 years and the termination date of an RESP was also extended-from the 25th to the 35th year.
ReplyDeleteAs well, this article implies that contributed money is taxed when it is withdrawn, only the income and grant portion of the withdrawal is taxed. As well, only the income portion of the RESP can be converted to an RRSP if the child does not attend school; and only if the subscriber has contribution room available.
ReplyDeleteThank you Anonymous for your remarks. I somehow missed the age change, but you are right. As for the taxes, you are correct again, however I was not trying to say it is all taxable. I would just hope that if someone faces those situations that they get some advice before they act as there may be other options for them, such as transferring the RESP to another child.
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