Registered Education Savings Plan

RESP is an investment plan supported by the Government of Canada that aims to encourage parents to invest in their child’s higher education.

A Registered Education Savings Plan (RESP), is an investment plan supported by the Government of Canada that aims to encourage parents to invest in their child’s higher education. It is like a savings plan that would assist in sponsoring your child’s post-secondary education. This tax-advantaged plan allows you to save in a timely manner and support your child to accomplish their professional goals without having to rely on any high-interest student loans. 

The authority to open an RESP account for a child is open to all, it could be a child’s parents or guardians, or grandparents, or any other relatives or friends. The contributions to this account can be made for a total of 31 years and expire by the end of 35 years from the time the account was been opened. 

Multiple Registered Education Savings Plan (RESP):

Individual RESP

This plan can be used by an individual contributor to sponsor the education of any one child beneficiary. The child may or may not be related to the account holder.

Family RESP

This plan can only have a single account holder who can contribute to the education of multiple children from the same family. The beneficiaries could be for the account holder’s own children, nephews, nieces, and any other child from the family that is related to them.

GROUP RESP

This plan can have more than one account holder, however, only one child can be the beneficiary. It is a group plan for different family members or individuals who wish to come together and contribute to the education of a single child.

Benefits of RESP Account:

  • The federal government permits investment income to accumulate in a tax-advantaged account until the funds are withdrawn from the plan. 
  • The Canadian government contributes a certain amount (free money) to these programs for students under the age of 18, in the form of grants which are up to $7200. 
  • Many insurance companies offer a 15% Education Bonus of up to $75200, ask your insurance advisor for the same. 
  • The grants and bonuses can be used for all post-secondary education expenses including tuition, lodging, school supplies, transportation, food, etc. 
  • The money can be used to cover the expenses of a full-time course or a part-time degree as per the beneficiary’s choice. 
  • With systematic and timely investments, you can build a significant pool of funds that can cater to your child’s higher education, as per their choice without having to face any financial curbs. 
  • The investments accumulate over time and provide higher returns than many other regular savings options. 

Government Grants to grow your child’s RESP:

The Canada Education Savings Grant (CESG) is the additional money granted by the Government of Canada annually to your Registered Education Savings Plan. This was established by the federal government, to encourage parents to invest in their children’s higher education, at their earliest possible convenience. 

1. Canada Learning Bond (CLB): 

The Government of Canada offers grants known as the Canada Learning Bond (CLB) to support low-income families in starting to save for their child’s post-secondary education as early as possible. 

  • The first year of eligibility is worth $500 
  • In each consecutive year of eligibility – $100, until the child reaches the age of 15 
  • The total CLB offered to ha child has a cumulative reach limit of $2,000 

2. Provincial Education Savings Programs: 

  • British Columbia Training and Education Savings Grant (BCTESG) 
  • Saskatchewan Advantage Grant for Education Savings (SAGES) 
  • Quebec Education Savings Incentive (QESI) 

3. Yearly and Lifetime contribution limits on an RESP: 

  • If your RESP contribution started from or after 2007: 
  • there is no annual contribution limit 
  • $50,000 is the maximum lifetime contribution you can make 

What happens if the RESP remains unused?

This could happen in case the child beneficiary does not wish to continue his/her education after high school and the savings remain unused. In such a scenario you may have a few options depending on the terms and conditions of your RESP: 

Option 1

You can continue to keep the money in the RESP for a minimum of 35 years from the time you started your investment plan or until the time period approved by your plan. With this, the RESP can still be used in case the child decides to continue with the post-secondary education at a little later age.

Option 2

You can replace the beneficiary or use the funds for another child covered under the plan, in case you have chosen an individual or a family RESP, though some rules may apply. However, if you have a group RESP, it differs from plan to plan if you can transfer the plan to another beneficiary without paying a fee

Option 3

You can transfer money from the RESP to your own Registered Retirement Savings Plan (RRSP). However, This option is only available if the following criteria are matched:

Option 4

You can transfer money from the RESP to its beneficiary’s Registered Disability Savings Plan (RDSP) if one of the following criteria are matched: The RESP beneficiary has a severe and long-term mental disability that is likely to prevent him/her from pursuing their higher education. Your RESP has completed 35 years of its validity or it has been open for a minimum of 10 years since the time you started the investment, and all the beneficiaries under the plan have turned 21 and are not continuing with their higher education.

Option 5

You have an option to completely close the RESP and take back all your contributions without paying any additional tax on it. However, all the contributions received from the government on your RESP have to be returned, since the money can only be used to pay for post-secondary education. You still have the option to take home the interest you’ve earned if your RESP has completed 10 years of investment since the time you started, and all the beneficiaries under the plan have turned 21 and are not continuing with their higher education.