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Understanding RESP options in Alberta

Posted on: August 10, 2017 | Author: Staff

Chances are, if you have a child that’s close to heading off to college or university, you already know about the tax and savings benefits of using a Registered Education Savings Plan (RESP) to help fund post-secondary education. You also probably know about the additional funds available to you through government grants and plans. But since it’s probably been a while since you sat down and looked at RESPs (like 17 or 18 years), it might be helpful to recap some of the key points.

What is an RESP?

A Registered Education Savings Plan (RESP) is a government-supported, tax-deferred savings plan to help save money for a child’s post-secondary education. There are two types of RESPs:

  • Family Plans have one or more beneficiaries. Each beneficiary must be the subscriber's blood or adopted relative, under 21 when named, and a child or grandchild of the subscriber.
  • Individual Plans have only one beneficiary. That beneficiary can be any age and does not need to be related to the subscriber.

How much can I contribute to an RESP?

The maximum lifetime amount per child is $50,000. There is no annual contribution limit. If you would like more money to be available for your child’s post-secondary education, talk to your financial advisor about other investment options.

What other government grants are available to assist in saving for my child’s education?

  • The Canada Education Savings Grant (CESG) is a Government of Canada incentive that pays 20 cents on every dollar you contribute to your RESP, up to a yearly maximum of $500 per beneficiary and a lifetime limit of $7,200. CESG room can be carried forward from the year the beneficiary is born (after December 31, 1997) up until the year that child turns 17, with a maximum grant per year of $1,000 per beneficiary. The CESG goes directly into your RESP plan until the beneficiary reaches age 17. Depending on your family’s net household income, the children may be eligible for additional CESG.
  • The Canada Learning Bond (CLB) is a Government of Canada grant of up to $2,000 for modest-income families. If your child was born after December 31, 2003, and your monthly Canada Child Tax Benefit (CCTB) payment includes the National Child Benefit (NCB) Supplement, the Government of Canada will make a first payment of $500 to your child's RESP. The CLP will also contribute an annual payment of $100 to the plan each year that your family is entitled to the NCB supplement, up to 15 years.

How do I apply for these grants?

To set up an RESP and receive government grant money, your child needs a birth certificate and a Social Insurance Number (SIN). Your financial institution can set up an RESP for you and apply for all eligible grants on your behalf.

How does my child withdraw money from an RESP?

The beneficiary can begin receiving Educational Assistance Payments (EAPs) from the RESP once enrolled in a qualifying post-secondary program. The student claims the EAPs as taxable income.

What if my child does not attend a post-secondary institution?

Here are some things your child can do with their RESP if they decide not to attend a post-secondary school:

  • Designate an alternate beneficiary.
  • Transfer the income earned (to a maximum of $50,000) into an RRSP provided there is unused contribution room in the RRSP plan.
  • Withdraw the funds. Income earned in the RESP is subject to a 20% surcharge in addition to income tax and grant money must be returned to the government.
  • You may withdraw the income earned in the RESP if all the these conditions are met:
    • All persons named in the plan are at least 21 years old
    • You are a Canadian resident
    • You opened the RESP at least 10 years ago
  • Donate the income earned in the RESP to a post-secondary institution.

If you have questions about your RESP, give us a shout and we can walk you through your options.

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