REGISTERED EDUCATION SAVINGS PLAN

August 2011

With the ever increasing cost of post secondary education, the tax-deferred growth of a Registered Education Savings Plan (RESP) and the Canada Education Savings Grant (CESG) are attractive ways to plan for this major life event.

 
Benefits of an RESP
  • Tax–deferred growth - Although RESP contributions are not tax deductible, the compounded earnings within the plan are tax sheltered until the intended beneficiary withdraws the funds.
  • Income splitting - When the funds are withdrawn and used to pay for the beneficiary’s post-secondary education, the plan earnings and government contributions are taxed in the hands of the beneficiary whose tax rate is typically in a lower bracket.
  • CESG incentive - The federal government adds 20% to your RESP contributions (up to a maximum of $500 per year, per child). The CESG is payable until the end of the calendar year a beneficiary turns 17. Additional provincial government incentives are also available in Alberta and Quebec.
Features

An RESP can be set up by a subscriber for a beneficiary who is a Canadian resident and has a Canadian Social Insurance Number (SIN). The funds from the RESP can be used towards eligible post-secondary educational institutions for a qualifying educational program.

There are 2 types of RESP: 

  • Individual Plan - created by a subscriber for one beneficiary. A subscriber may designate anyone as the beneficiary of the plan, including themselves, a spouse or common-law partner.
  • Family Plan - set up by a subscriber on behalf of one or more beneficiaries who are under 21 years of age at the time of designation and related to the subscriber by blood or adoption. Children, grandchildren, brothers & sisters are considered blood relations while nieces and nephews are not.

Lifetime maximum

The lifetime contribution limit is $50,000. Over-contributions are subject to a penalty of 1% per month on the amount in excess of the limit. Contributions can be made to a plan for 31 years and the plan matures 35 years after it has been set up. The maximum lifetime CESG is $7,200 per beneficiary. Unused CESG room can be carried forward to future years.

    An RESP is one of the easiest ways to save for the education of your children and grandchildren. If you would like a copy of our detailed educational report on the subject or for more information on your specific situation, please contact your Richardson GMP Investment Advisor.


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