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Registered Education Savings Plan (RESP)


Children give us a reason to live and a thousand reasons to hope. And also a desire to provide them with all the tools they need to succeed personally and professionally.

A registered education savings plan, commonly referred as an RESP, is the best financial vehicle to help you save for a beneficiary’s post-secondary education. Just like an RRSP, the federal government allows you to accumulate investment income on a tax-sheltered basis until the funds are withdrawn from the plan. In short, RESPs are to education what RRSPs are to retirement!

There are few eligibility criteria to open an RESP for the child. The child (beneficiary) must be a resident of Canada, have a social insurance number, and be under 18 years of age. The advantage Registered Education Savings Plans (RESPS) have over other investments, is the fact, the Canadian Government will add a yearly grant of 20% on top of your investment money. The maximum grant is $500.00 for each child, for every year of the plan; attained with an investment of $2,500.00 per year. The maximum grant over the life time of a Registered Education Savings Plan (RESP) amounts to $7,200.00 of government money for each child. The cumulative contribution limit is $50,000 per beneficiary. This means that a parent and a grandparent, for example, can both subscribe to separate RESPs for the same beneficiary. By making sure they do not exceed the total allowable maximum, they avoid paying penalty taxes.

Contributions can be made to the plan for 31 years from the effective date of the plan and the RESP must be fully liquidated no later than 35 years after it is set up.

Funds deposited in Registered Education Savings Plans (RESPS) grow tax free. When the beneficiary attends a post secondary institution, the student’s income tax rate is applied, most likely at a rate, much less than that of the contributing adult (the subscriber). The investment decisions are made by the subscriber’s financial institution.

Should the beneficiary decide not to attend a post-secondary institution, the funds from the Registered Education Savings Plan (RESP) can be transferred to a brother or sister under the age of 21. The subscriber may transfer the funds from an RESP to a Registered Retirement Savings Plan (RRSP) – to a maximum of $50,000.00. The funds may also be transferred to a spousal RRSP. In such cases the grant portion of the money in the RESP is returned to the Canadian Government.

When the beneficiary enrolls in a post-secondary institution as a full time student the RESP can begin making payments to the student. Payments can go towards the student’s tuition, books, accommodations and transportation.