The RESP – registered Education Savings Plan – is a Government Program like the TFSA and the RRSP that was created in 1972 to help parents save for their children’s future post secondary education.
You can open an RESP account at any bank, insurance company or financial institution you wish. The RESP is not a savings or investment account. It’s a tax-deferred account to help parents, grandparents and others save for a child’s future university or post-secondary education.
How Does The RESP- Registered Education Savings Plan Work?
Government of Canada matches 20% of whatever you deposit to the RESP account each year.
The maximum annual RESP grants (called Canada Education Savings Grants or CESG) is $500.
Example how the CESG Grants Work.
Your Deposit | 20% CESG Grant | Total Amount |
$1,000 | $200 | $1,400 |
$2,000 | $400 | $2,400 |
$2,500 | $500 | $3,000 |
| $3,000 | $500 | $3,500 |
https://www.investopedia.com/terms/r/resp.asp
What’s The Maximum RESP Grant (CESG) My RESP Will Receive?
While the maximum amount you can deposit to your child’s RESP by the time your child is 18 is $50,000, the maximum Government CESG grant is only $7,2000 if you deposit $36,000.
While banks and other advisors will promote deposit $50,000. Each dollar over $36,000 is actually reducing your 20% CESG grant.
If by the age of 18 you deposit $36,000 and the Government CESG grant is $7,200. Your total guaranteed RESP account by age 18 is $43,200. Any growth in the RESP account is entirely based on your investment decisions and the results of the stock market.
Who Can Open An RESP – Registered Education Savings Plan?
Subscribers, usually parents open the RESP account and make contributions (the deposits) for the plan’s beneficiaries (the children).
Can My Child Use The RESP For Anything They Want?
No – The RESP is a Government program with Government rules. The RESP can only be used for education purposes. Your child can’t use the funds for anything other than education related expenses.
Can My Child Use The RESP For Any Education They Want Anywhere In The World?
No – The RESP is a Government Program with Government Rules. Your child can only use the RESP for a Government approved education program.
Is the RESP Tax-Free or Tax-Deferred?
The RESP is not tax-free. It’s tax-deferred. As long as the funds you deposited to the RESP stays in the RESP you will not pay taxes on any interest your funds earn or any capital gains taxes on any investment gains.
The moment you begin withdrawing there will be income taxes to be paid on the RESP amounts withdrawn.
Will I Pay Tax On Withdrawals From My Registered Education Savings Plan – RESP?
You will only pay income taxes on the gains in your RESP when you begin withdrawing from the RESP for your child’s education.
To make sure you’re withdrawing from your RESP correctly. It’s up to you to tell the RESP provider to withdraw funds on the following basis.
Any withdrawals of the money you put in are tax-free as you already paid taxes on the income before you deposited it.
Withdrawals of the RESP grants or the gains in the RESP are taxed as income in the hands of the owner of the RESP.
How Do I Open An RESP Account?
In order to open an RESP account, your child will have to have a Social Insurance Number. You can get them an SIN number the day they’re born. From then on any deposits you make will be tracked by the Government of Canada to make sure you follow the rules.
Are There Any Taxes On Interest or Gains In My RESP Account?
While your child is under 18, your contributions are generally eligible for a matching federal government contribution, called the Canada Education Savings Grant (CESG). This grant matches 20% (and in some cases more), of your contribution, up to an annual maximum of $500 and lifetime maximum of $7,200 per child. Additionally, the Canada Learning Bond (CLB) may be available for children in lower-income families.
What Types Of Registered Education Savings Plans (RESP)’s Are There?
There are two types of RESP accounts.
Individual RESP – An individual RESP account is for one child. If the child doesn’t use their RESP account. An individual RESP can only be used for the education of that child alone.
Family Plan RESP – Family Plan RESP is an account with two beneficiaries. While you can contribute to either one, the funds in the RESP can be used by a second child, so if the first doesn’t attend a Government approved education program, or has a scholarship or chooses a different path, the funds in the RESP can be used by the other child.
What Happens If My Child Doesn’t Attend University or College?
If your child doesn’t attend a Government approved education program, college or university. Or if they have a scholarship or choose a different path, then you must close the RESP account, return all the CESG grants you received and you can only withdraw any gains in the RESP account when your child is 21 or permanently disabled.
When your child reaches 21 and your withdraw the gains in the RESP account, you will need to pay your income taxes on the entire gains of the RESP account plus another 20% of the total as penalty.
https://www.edwardjones.ca/ca-en/market-news-insights/guidance-perspectives/resp-withdrawal-rules?gad_source=1&gclid=Cj0KCQjw2ou2BhCCARIsANAwM2FOdYvwcx2CpUtGwerrKm35Y9c-wW_dL7JEtbKCTAJ6sz5vrGUoVDYaAue9EALw_wcB
Are There Other Options When Saving For My Child’s Future Education?
https://www.insuranceforchildren.ca/what-is-an-resp-how-does-it-work/
