Financially Speaking

A Registered Education Savings Plan (RESP) is a great way to save for a child’s post-secondary education. Here are some basic facts so you’ll be sure to get the most from an RESP.

• Investments that are RESP-eligible allow savings to grow tax-free until your child enrolls in a qualifying post-secondary education program.
• There are three types of RESPs: A Family Plan allows you to name multiple beneficiaries, each of whom must be related to you. This includes siblings, half-siblings and step-siblings. An Individual Plan allows you to name one beneficiary, who does not have to be related to you.
• A Group Plan pools the earnings on your savings with those of other people, and the amount your child receives to pursue post-secondary education is based on how much money is in the pool and on the total number of students in that pooled age group.
• The Canadian Education Savings Grant (CESG) is a federal program that provides a matching grant for each RESP contribution made for an eligible child. It is generally worth 20% of the first $2,500 of annual contributions ($500/year), but depending on family income and prior contribution history, could be worth up to $1,100/year.
• The Canada Learning Bond (CLB) is a federal program that provides $500 bond to an RESP for a child whose family receives the National Child Benefit Supplement, and $100/year for up to 15 subsequent years.
• You can authorize Educational Assistance Payments (EAPs) from the RESP to the student beneficiary as soon as the student enrolls in an eligible full- or part-time post-secondary education program. EAPs consist of government bonds and grants and plan accumulated earnings; they do not include contributions. EAPs are taxed to the student beneficiary and must be used to further the student’s post-secondary education.
• You can withdraw your RESP contributions tax-free at any time for any purpose, but if you withdraw contributions at a time when your student is ineligible for an EAP, you will be required to repay CESG and perhaps other provincial/territorial grants.
• Family and Individual plans generally allow siblings under 21 to share the contributions, CESG, and accumulated earnings without penalty. These sharing rules are quite complex so contact your plan provider for the details.