RESP Basics

What is an RESP?

May 27, 2019

The acronym stands for Registered Education Savings Plan and is a type of registered account which is used for education savings. Funds that are contributed into the account are after-tax dollars, meaning you do not get a tax deduction when making a contribution. What you do receive is a 20% CESG or Canadian Education Saving Grant payment on the first $2,500 of contribution per beneficiary/child. If you miss a year, all is not lost. You can makeup contributions by adding an additional $2,500 per beneficiary per year the child is behind. For example, if your child is 4 years old and you have yet to make any contributions, you could contribute $5,000 per year for the next 3 years to make up for the years that you missed. You would receive $1,000 annually in CESG for each $5,000 contribution until the child is caught up. There is a lifetime limit of $7,200 CESG per beneficiary.

If your family income is below $91,831 then you may qualify for additional CESG at the time of contribution. The chart linked outlines the different amounts per family income level. Note that the $7,200 lifetime CESG limit per beneficiary still applies.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-education-savings-plans-resps/canada-education-savings-programs-cesp/canada-education-savings-grant-cesg.html

In addition to CESG, low income families may also qualify for the Canada Learning Bond (CLB) up to a max of $2,000 per eligible beneficiary. These payments are $500 in the first year of eligibility, and $100 per year in each additional year that the child is eligible – up to and including the year the child turns 15. Eligibility is determined by the number of qualifying children in the family and the adjusted income of the family. For families with less than 3 children you would need an adjusted net family income of less than $46,605 in 2018 to qualify. For more information on eligibility click here.

Children living in British Columbia are also eligible for the British Columbia Training and Education Savings Grant (BCTESG). This provides a one-time payment of $1,200 to all children residing in BC between the ages of 6 and 9. In order to qualify, the child must have an account at a participating financial institution, be born in 2006 or later, and the child and parent/legal guardian must be residents of BC when the application is made.

The RESP has a maximum contribution limit of $50,000 per beneficiary. Contribution can be made for up to 31 years and the plan can be open for 35 years.

The last of the many benefits of the RESP is when withdrawals are made. The grant that the RESP receives from the government and the growth of the investments can be withdrawn as an EAP or Education Assistance Payment. These payments are taxed in the hands of the beneficiary at what is typically a much lower tax rate than the contributor. Withdrawals made up of the original contributions are withdrawn tax free.

What happens if your child doesn’t use the money?

  • If the RESP is a family plan, then the money can be used for another sibling in the plan.
  • If you have available RRSP space, you can transfer up to $50,000 of the contributions to your RRSP. In order to do this the RESP must have been in place for 10 years & the beneficiary must be 21 or older and not seeking post-secondary education. The grants and bonds are returned to the government.
  • Close the RESP. Your contributions are yours to keep but grants and bonds are returned to the government.
  • Transfer the money to a Registered Disability Savings Plan (RDSP) if the child qualifies.

If you’d like to discuss the education savings options for your family, phone us at 416-246-0888 or send an email to cattelan.privatewealth@holliswealth.com. We would like to help you navigate through this difficult financial landscape and help you live life confidently.

Dylan Wilson BComm, CFP®

Cattelan Private Wealth Team