What is an RESP?

An RESP is a savings vehicle used to save money to support the post secondary education of a Canadian child.

There are three parties to an RESP, the subscriber, the beneficiary and the promoter. The subscriber is an individual who makes contributions to the RESP. Typically this would be the parents, grandparents or other relative of the beneficiary. The beneficiary is the child that will receive the benefit of the savings accumulated in an RESP to pay for their post secondary education. The promoter is an individual or an organization that manages the RESP on behalf of the subscriber and is responsible for submitting contributions to the plan and making payments to the beneficiary when it comes time to fund their post secondary education.

Generally the subscriber enters into an RESP contract with the promoter. The subscriber then names one or more beneficiaries and agrees to make contributions to the RESP for those beneficiaries over the course of several years.

What is the different between a Family Plan and a Specified Plan?

A Family Plan can name more than one beneficiary. Additionally, all beneficiaries must be related to the subscriber(s) by a blood relationship or by adoption. A Specified Plan is an RESP for a single beneficiary.

What are the main benefits of an RESP?

• Income generated off the assets inside an RESP is allowed to grow tax fee
• The Canadian Government provides several grants as an incentive to invest in RESPs
• If your child does not pursue post secondary education the subscriber is entitled to receive their RESP contributions back tax free.

Are contributions to an RESP tax deductible?

No. Contributions by a subscriber to an RESP are not tax deductible. However, if the beneficiary of an RESP does not pursue a post secondary education then the subscriber is entitled to receive their RESP contributions back without paying any tax.

Are there any RESP contribution limits?

Yes. The lifetime limit on contributions to an RESP for a beneficiary is $50,000. For any year after and including 2007 there is no annual limit to the amount you can contribute to an RESP, as long as the amount does not exceed the 50,000 lifetime limit.

What government grants are available?

Canadian Education Savings Grant (CESG):  Regardless of your family income you will receive a grant worth 20% of your annual contributions up to a maximum of $500 per year or $7,200 over the life the RESP.

If you income is less than $40,970 you will receive a 40% CESG grant on the first $500  contributed to an RESP. If you income is between $40,970 and $81,941 than you will receive a 30% CESG grant on the first $500 contributed to an RESP.

Canada Learning Bond (CLB): Provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education. For families entitled to the National Child Benefit (NCB) supplement for their child, the CLB will provide an initial $500 to children born on or after January 1, 2004. Thereafter, the CLB will also pay an additional $100 annually for up to 15 years for each year the family is entitled to the NCB supplement for the child.

What are the eligibility requirements to become a beneficiary?

• the individual’s must have a SIN number
• the individual must be a resident of Canada

Where can I find an RESP promoter?

Most Canadian banks sell RESPs. There are also several companies the focus specifically on selling RESPs.  Canadian Scholarship Trust and Heritage come to mind.