Give your children an educational advantage

A Registered Education Savings Plan (RESP) is a tax-deferred investment plan designed to assist you in saving for your child's or grandchild's post -secondary education. Unlike an RRSP, your contributions to the plan can't be used to reduce earned income for tax purposes; they are, however, allowed to grow on a tax deferred basis within the plan. The money that you contribute grows tax-free within the plan. When it’s time to withdraw, any gains (but not the original contributions) are taxed in the hands of the beneficiary (i.e., your child) at their presumably lower tax rate.

The government offers a 20% grant, called the Canada Education Savings Grant (CESG), on the first $2,500 contributed to an RESP each year, up to a lifetime grant maximum of $7,200. To encourage families to save the government offers an extra grant on the first $500 contributed depending on the family’s income level.

In addition, for children born after Dec. 31, 2003 whose family receives the National Child Benefit, an additional grant, called the Canada Learning Bond, in the amount of $500 is available. Going forward, every year the family is eligible to receive the National Child Benefit (until the child reaches the age of 14) a further grant of $100 per year will be added to the RESP by the Canadian government. The Canada Learning Bond will stay in the RESP account until the child enrolls in post-secondary education. At that time, the child can use all the money towards their education. If the Canada Learning Bond is not used within 26 years after you opened the account - (if your child does not pursue post-secondary education) - the Canada Learning Bond will be returned to the government.

Extra Facts about RESPs

• RESP savings can be placed in a wide variety of investments.
• The contributor chooses how often, how much, and how the contributions are to be invested.
• The maximum lifetime contribution for each child is now $50,000 with no annual contribution limits.
• Grant money will be given for contributions made up to the end of the year in which the beneficiary turns 15 years of age. Grant money for contributions may also be received at 16 and 17 years of age if one of the following conditions has been met: 1) Contributions of at least $2000 were made to an RESP account by the end of the calendar year in which the beneficiary turned 15 years of age, without withdrawals; or (2) at least $100 a year was contributed to an RESP in any four years prior to December 31 of the calendar year in which the beneficiary turned 15 years of age. These four years do not have to be consecutive and the contributions cannot have been subsequently withdrawn.
• Investment earnings and any grant money in the plan must be used for educational purposes. But the original contributions belong to the contributor and do not have to be used to fund the beneficiary’s education. The contributor can withdraw them at any time, but a withdrawal may trigger a request for the repayment of any grant money.
• Beneficiaries can be changed.
• The contributor must authorize any withdrawals to pay for beneficiary’s education.
• The beneficiary must provide proof of enrolment in an eligible program in order to withdraw earnings and grant money. Acceptable proof would be a tuition invoice with the beneficiary’s name on it. A letter of acceptance from the post secondary institution is not considered enough proof as a student can easily receive two or more of these. It does not prove which institute they are attending.
• If the beneficiary does not pursue post-secondary education, there are several options for closing the RESP. But be aware, all grant money must be returned to the government.

Top five RESP tips

1. Start early and make it automatic. Enroll in a pre-authorized chequing program.
2. Contribute at least $2,500 a year to get the full $500 federal grant each year.
3. Don’t withdraw your contributions from an RESP before your child starts postsecondary. Otherwise, you will have to pay back part of the grant.
4. If you have not yet contributed to an RESP, the last year you can contribute and receive grant money is the year the child turns 15.
5. Opening an RESP account is easy, get a Social Insurance Number (SIN) for your child – see www.servicecanada.gc.ca for more information and then come see Foley Financial!

The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed have not been approved by and are not those of Dundee Wealth Management, its subsidiaries, or its affiliates, including, but not limited to Dundee Securities Corporation, Dundee Private Investors Inc./Ltd., Dundee Insurance Agency Ltd., and Dundee Mortgage Services powered by Invis. This site is not deemed to be used as a solicitation in a jurisdiction where this Dundee representative is not registered.