A Registered Education Savings Plan (RESP) is a tax-deferred investment plan that helps you save for a child's post secondary education, so that you'll have the funds you need, when you need them. You can make contributions up to a maximum of $50,000 per child until the child turns 31. Your contributions can be supplemented by the federal government's Canada Education Savings Grant (CESG). Unlike an RRSP, your contributions to an RESP are not tax-deductible, but the investment income earned is tax-sheltered until withdrawn.
Types of RESPs
Family plan RESP
With a family plan, you (the subscriber) can name more than one child as a beneficiary of the plan. Each beneficiary must be your child, grandchild, great-grandchild or sibling, by birth or adoption. If the child for whom the plan was originally intended decides not to go on to postsecondary education, the funds can be transferred to another child in the plan.
Individual plan RESP
These plans allow for only one child to be named as beneficiary. He or she does not have to be related to you.
What if the child does not pursue higher education?
If you have a family plan, you can use the earnings to pay for the education of another child the plan. With an individual plan, you may have the option of naming another beneficiary, but the total CESG may have to be returned to the federal government.
If no beneficiary chooses to pursue higher education, you may be able to transfer up to $50,000 tax-free from the RESP to your RRSP subject to these special conditions:
- The RESP must have been in effect for at least 10 years.
- All RESP beneficiaries must be at least 21, and not currently seeking higher education.
- You must be a Canadian resident.
- In addition, normal RRSP contribution limits apply.
If you do not have sufficient RRSP contribution room, you may be able to withdraw plan earnings, however, some restrictions and additional taxes may apply.
Useful RESP information
- In order for an RESP to receive the federal government's CESG, the child named in the RESP needs a Social Insurance Number.
- Lifetime RESP contribution maximum: $50,000 per child. If more than one RESP is opened for the same child, total contribution amounts contributed for the child (including contributions by anyone other than you, and whether to the same or different RESPs) cannot exceed the allowable lifetime maximum.
- In the CIBC RESP, CESGs earned on plan contributions are paid monthly and deposited directly to CIBC Money Market Fund. However, the CESG for a Portfolio Rebalancing Service account is allocated proportionally to the various mutual funds in the portfolio.
* The CESG lifetime limit of $7,200 per Beneficiary still applies. If this is exceeded when funds are withdrawn for the post-secondary education of another Beneficiary, you must refund any excess CESGs to the federal government.
The information in this article is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual.