Registered Education Savings Plan
What is a Registered Education Savings Plan (RESP)?
A registered education savings plan is an account that was created by the federal government in order to support and encourage families to put money aside for their child’s post-secondary education studies. As a result, subsidies and tax benefits are provided in order to build up money reserves to promote higher education for newer generations. Contributions made to a child’s RESP account are tax-free so long as they are used for educational purposes. The beneficiary must be a Canadian resident in order to qualify for this account. Along with contributions made by a child’s parent, the federal government can provide contributions to the child’s RESP. If you live in Alberta or Quebec you may also qualify for additional provincial incentive plans.
Federal Government Contributions
• Canada Learning Bond (CLB)
• Canada Education Savings Grant (CESG)
Provincial Government Contributions
• Alberta Centennial Education Savings Plan Grant (ACESPG)
• Quebec Education Savings Incentive (QESI)
Canada Learning Bond (CLB)
The federal government helps families in the middle to low income classes by providing additional incentives to encourage early saving habits for their child’s post-secondary education. This incentive can be up to 2,000 dollars that will be directly placed into the child’s RESP. So long as you continue to also receive the national child benefit, also known as the “family allowance” the CLB may continue to contribute money up to 15 years. Your child must have been born on or after January 1st, 2004 to qualify for the following benefits.
• Canadian Learning Bond will provide an initial $500.00 to your child’s RESP account
• Along with this first $500.00, you may also receive $25.00 in order to cover the costs of opening a RESP account for your child
• Following the initial $500.00 benefit, you may also receive an additional $100.00 each year - up to 15 years - so long as your family is still entitled to the national child benefit
• In total, your child may receive $2,000.00 worth of contributions deposited into their RESP account
Canada Education Savings Grant (CESG)
The Canada Education Savings Grant is an additional federal incentive to encourage individuals to save for a child’s post-secondary education. The benefit provided by this grant is calculated by the amount contributed to the child’s RESP account by family members and friends. As with the Canada Learning Bond, money issued by the Savings Grant will be directly placed into the RESP.
Regardless of your family income, the government will pay a standard 20% of the yearly contributions made to the child’s RESP account, with a maximum yearly benefit of $500.00 and a maximum lifetime limit of $7,200.00.
You can also get an additional amount deposited into the RESP account from the Savings Grant. This amount is solely based on your family’s net income and therefore the percentage (either 10% or 20%) given can change each year as your net family income changes.
These contributions cease when the child turns 17 years of age.
Alberta Centennial Education Savings Plan Grant (ACESPG)
Only two provinces in Canada provide additional incentive programs that correspond with the federal governments contributions to a child’s RESP. Alberta has created its own incentive to encourage early educational savings and therefore if you reside in this province you can qualify for both federal and provincial Savings Grants.
• You must have a child born in Alberta in 2005 or after
• This child must have an RESP account to which he/she is the beneficiary
• He/she must also obtain a social insurance number
• Basic: $500.00 grant deposited into each eligible child’s RESP account
• Additional: $100.00 grants are provided to children who turn 8, 11, or 14 on or after January 1st, 2005 (so long as they attend an Alberta school)
Quebec Education Savings Incentive (QESI)
Quebec is the second province in Canada to help provide provincial benefits to a child’s RESP account. This incentive was introduced in February 2007 and consists of refundable tax credits that are paid directly into the RESP account so long as the account if opened with a financial institution that allows for this incentive plan.
In order to receive this credit and have it paid to the account you must:
• Apply with Quebec’s Revenue Agency
• Open an RESP with a bank, group plan dealer or a financial service provider
• Verify that this provider offers the QESI
How Does An RESP Work?
In order to properly acquire a RESP account for your children as well as qualify for federal and provincial contributions (Alberta and Quebec only), you need to follow specific steps.
1. An individual, usually a parent will open a registered education savings plan and name his/her child as the beneficiary. Depending on the type of plan and terms, there usually is only one named beneficiary to the education funds; however, some accounts will allow more than one if you have multiple children.
2. Once a RESP is created, family members and sometimes non-family members (friends) can deposit money into this account for the beneficiary’s education. Federal and Provincial grants will be paid to the RESP if applicable.
3. The provider of the RESP will manage the account and ensure that the payments deposited are administered to the beneficiary in accordance with the terms of the account. So long as the money remains in the RESP it is tax-free.
4. The provider can make payments to the beneficiary to help finance tuition costs
5. If the child does not attend post-secondary education, the provider can return the contributions made back the their original source tax-free (additional options are available depending on the terms of your contract)