Your bundle of joy has arrived! Or perhaps you are the Grandparent, Aunt, Uncle, or Sibling! What better way to show your love and attention towards this child than helping to save for his/her education.
A Registered Education Savings Plan (RESP) is a government sponsored savings program that helps you save for a child’s post-secondary education.
Your savings grow tax-deferred until withdrawn. When the BOJ (bundle of joy) withdraws from the RESP for educational purposes, the withdrawals are taxed in the student’s hands, typically at a lower rate.
When you open an RESP, you name a “beneficiary” (the bundle of joy) who will be entitled to the proceeds for their education. The person you name must be a Canadian resident and have a Social Insurance Number.
If you save for this child while he/she is aged 17 and under, the Government will also put money into the RESP as a “grant”.
Getting a grant is like receiving free money towards education. The grants stop at the end of the year when the student turns 17.
Canada Education Savings Grant (CESG)
The federal government’s Canada Education Savings Grant (CESG) will match 20% of the first $2,500 you contribute to your plan every year, to a maximum of $500 more every year, up to a lifetime maximum of $7,200.
Quebec Education Savings Incentive (QESI)
The Quebec government adds an additional 10% to your contribution, up to $250 every year. That can mean an additional $3,600 per child over the life of the RESP.
You can make contributions into an RESP until 31 years after you first opened it (by that time your precious BOJ should be supporting YOU).
Contributions: While there are currently no annual contribution limits, you can receive the Canada Education Savings Grant (CESG) only on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists for previous years. It might sound a bit complicated but a Rothenberg Investment Advisor can sort it out for you.
- There is no annual contribution limit but there is;
- Lifetime contribution limit: $50,000
Ideally the student will withdraw funds from the RESP to be used towards post-secondary education at which time the gains will be taxed at his/her income tax rate which normally would be lower. Deposits made to the RESP can be withdrawn at any time by you the contributor. In this case, the eligible Government grants paid to the account on those contributions must be repaid to the Governments.
If the student elects to not attend a post-secondary institution, any accumulated interest may be withdrawn by you the contributor; the gains will be taxed as income unless rolled into a registered retirement savings plan (RRSP), subject to individual contribution limits and applicable rules. Provisions are available for early withdrawal without penalty should the recipient not be eligible for post-secondary education due to circumstances beyond their control.
Self-Directed RESPs offer the flexibility to have multiple investments in one plan. Typically, investment choices have been limited to Bank savings accounts or GIC’s. A self-directed plan allows the RESP to hold individual stocks, bonds, mutual funds as well as the GICs and savings accounts.
Rothenberg Capital Management offers self-directed plans. Your Rothenberg Investment Advisor can help recommend a suitable portfolio to help you achieve your education funding goals. Do not hesitate to call us for a chat.
