Registered education savings plan (RESP's)
Worried about your child's post secondary education?
RESP’s are a great way to start investing and saving for your child's (a beneficiary) future. It is available to contributors (parents, grandparents or friends) through RESP promoters (contract must be registered under Income Tax Act with Canada Revenue Agency). Growth in this fund is not taxable until the funds are taken out of the account and used towards your child’s education. Although tax-free, contributions cannot be deducted from the contributor’s income on income tax and benefit returns.
The maximum contribution allowance is $50,000 towards each child’s RESP. After that, contributions are taxable as specific rates.
Types of RESP's
Individual Non-family RESP's
Only one beneficiary, can be over 21 years old when named, and doesn’t have to be related to the individual opening the RESP. When and how much to contribute is chosen by the subscriber in this type of RESP.
A family RESP can have multiple beneficiaries that are under 21 years of age when named that are all related to the individual opening the RESP. Related beneficiary includes relation by blood or adoption (parents, siblings, children, or grandchildren), but not nieces or nephews. This plan also allows freedom on when and how much to contribute, as long as the beneficiary is under 31 years of age. Contributions can be transferred from another family RESP plan. Thus, if you open an account for 3 kids, and only 2 pursue education, the income can be redirected to the 2 pursuing education.
Group RESP's (Pooled RESP, Education Trust, Scholarship Trust)
Group RESPs have a “pooling principle” meaning the beneficiary receives educational assistance payments if they enrol in a qualifying program. In this plan, a pre-set amount is contributed and do not get investment choices. If the beneficiary of a Group RESP fails to qualify, it will go to other beneficiaries who qualify (i.e. siblings).
Educational Assistant Payments (EAP's)
EAP’s add contributions to the amount contributed to the savings plan. This helps funds grow in time for the beneficiaries education.If payments have qualified as EAPs, once a students enrolment ends, a beneficiary can receive EAPs for up to 6 months.
EAPs can be received for a student as long as one of the following situations applies:
student is 16 years of age and is enrolled in a specified educational program
In Ontario, there are two types of EAP’s: Canadian Education Savings Grant (CESG) and Canada Learning Bond (CLB)
Information summarized from Government of Canada - Taxes