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Monday June 24, 2019


RESP Advice

Registered Education Saving Plan (RESP)


The following sections offers advice when considering to invest in a RESP.

What is an RESP?

An RESP  (Registered Education Saving Plan) is a contract between a subscriber and a promoter. The subscriber is the individual making contributions to the RESP for the future student (beneficiary). The promoter is the organization agreeing to make education assistance payments (EAPs) to the beneficiary. Beneficiaries include the EAPs in their income for the year in which they receive them.

Contributions may not be deducted from the subscriber’s income or tax return. Contributions do not have to be included in the subscriber’s income or tax return if paid back by the promoter.

How does an RESP work?

A subscriber enters into an RESP contract with the promoter and names one or more beneficiaries under the plan (if you select a family plan). The subscriber will then make contributions to the RESP. Government grants such as, the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB) or a designated provincial educational savings program, will be paid to the RESP.

The promoter of the RESP administers all amounts paid into the RESP. As long as the income stays in the RESP, it is not taxable. The promoter also makes sure payments from the RESP are made according to the terms of the RESP.

The promoter can return the subscriber's contributions tax-free and can make payments to the beneficiary to help finance his or her post-secondary education. The promoter can also make accumulated income payments.

Types of RESP

There are two different types of RESP:

Family Plans

Specified Plans

1. Family Plans

A family plan is suitable for a household with more than one prospective student. It is the only RESP allowing subscribers more than one beneficiary. To name an individual as your beneficiary, you must be connected by blood, adoption or have had this type of relationship with an original subscriber if now deceased.

The beneficiaries must be under 21 years of age when applying for a RESP under the family plan. If one family plan is transferred to another, a beneficiary over the age of 21 can be named beneficiary of the new RESP.

2. Specified Plans

This is a single beneficiary RESP. The subscriber is not permitted to select any other beneficiary. The beneficiary of a specified plan is entitled to the disability tax credit for the beneficiary's tax year that includes the 31st anniversary of the plan. Except for transfers for another RESP, no contributions may be made to the plan at any time after the end of the year that includes the 35th anniversary of the plan. The specified plan must be completed by the end of the year that includes the 40th anniversary of the plan.

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When opening an RESP, it’s important to be prepared. Ensure to have the proper documents on hand. You will need the social insurance card of the subscriber and the beneficiary to open the plan. You will also need the beneficiary’s birth certificate or permanent residence card.

Determine if the beneficiary is eligible for bonds or grants from the government. If the beneficiary is born in or after 2004, he or she may qualify for the Canada Learning Bond (CLB). The subscriber must be receiving the National Child Benefit Supplement as part of the Canada Child Tax Benefit (often for families with a net income of under $40,970). If you meet these qualifications you could get $1,000 deposited in your new RESP from the government. Open the RESP and you may apply for the CLB without making any deposits or your first money contribution.

Another government contribution is the Canada Education Savings Grant (CESG). The government will match your savings inside the RESP. A 20-per-cent match is made on $2,500 contributed per beneficiary annually. If your income is lower you may get up to a 40-per-cent match on the first $500 saved each year.

On the first $500 saved annually, the government will contribute:

♦  $200 (40-per-cent match), if your net family income is $40,970 or less;

♦  $150 (30-per-cent match), if your net family income is between $40,970 and $81,941.

Always read the fine print. There may be hidden cancellation fees or penalties on late payments.