Registered Savings Plans / RESPs - Registered Education Savings Plans
RESPs - Registered Education Savings Plans
A RESP is a special account that can help you save money for your child’s postsecondary education. As a “registered” account (registered with the Canada Revenue Agency), money that you contribute to the plan gets to grow tax-free. However, you do not get a tax deduction from the contribution as you would from an RRSP.
As an incentive to help you save for your children’s education, the government offers the Canada Education Savings Grant (CESG) – a grant of 20% on the first $2,500 contributed to an RESP each year for a total of $500. If you invest a minimum of $2,500 per year, you would get the lifetime maximum grant of $7,200 over 15 years.
Getting started is easy
1. Get a Social Insurance Number (SIN) for your child.
2. Decide what type of RESP account you want to open: a family plan or an individual plan.
3. Get an application from your financial advisor
How much can you contribute
As of 2007, there is no longer an annual contribution limit, so you can contribute any amount up to a lifetime maximum of $50,000 to each beneficiary’s RESP. If you contribute more than this amount, you will be subject to a penalty of 1% per month on the over-contribution until the excess is withdrawn.
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Tips
1.Who qualifies for the CESG?
A beneficiary must be under age 18, have a Social Insurance Number (SIN)and be a Canadian at the time of the RESP contribution.
2.How do I apply for the grant?
All you need to do is complete the CESG section of the RESP application form and include the beneficiary’s SIN. Your advisor should take care of the rest.
3.How is the CESG paid?
Your advisor submits the contribution information directly to the government. The grant is then paid directly to your RESP.
4.What happens if I don’t maximize my CESG entitlement?
There is no longer an annual contribution limit so you can contribute as much as you want in any given year up to a lifetime limit of $50,000. However, only the first $2,500 will attract the $500 maximum annual CESG.
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