How to start an RESP for a child you care about
By ATB Financial 29 October 2018 4 min read
Job markets are increasingly competitive in Alberta, and specialized skills and qualifications are necessary in many industries and for many positions. For this reason, post-secondary education and training will inevitably remain in great demand.
Higher education not only helps you stand out from the crowd, but it also helps you attain a higher salary: In Canada, 60% of those in the highest earnings category had a post-secondary degree. Unfortunately, tuition costs are also climbing higher, as are other post-secondary expenses (use this interactive tool to see the average cost by program).
If you want to help a child that you deeply care for—like a grandson, niece, cousin, or goddaughter—with their future post-secondary costs, a Registered Education Savings Plan (RESP) is a great choice.
Here's how to start an RESP for a child for whom you are not the primary caregiver:
Consult the parent(s) or primary caregiver.
You may not be the only one who wants to set up an RESP for the child. One or more plans may have already been started by his/her parent(s), grandparents, aunts, or uncles. Asking for permission not only helps you better understand the situation but also helps the parent(s) coordinate with the different RESP subscribers.
Confirm if you are a blood relative to the child.
According to the Income Tax Act (ITA), only siblings, parents, or grandparents are classified as blood relatives. If you are an aunt, uncle, cousin, or other family member of the child, you are not considered related by blood.
Open a family or individual plan.
If you are not a blood relative, open an RESP Individual Plan. In this case, you can only support one child per plan. If you are a blood relative, open an RESP Family Plan. If there is more than one child you want to help and they are all siblings under the age of 21, enrolling them all in one RESP Family Plan can save on plan fees.
Name a replacement subscriber for your RESP.
An RESP belongs to the subscriber (that's you) not the beneficiary (the child you opened it for). By naming a replacement subscriber when you create an RESP account (or naming a replacement subscriber in your will), you will ensure that, if you die, the RESP savings and grant money that you put away gets directed to the child.
If you don't identify a replacement subscriber and you pass away, the RESP will become part of your estate and it will be much harder for your executor to arrange for those savings to be directed to the child. On top of that, your estate will also have to return the money the government contributed to the RESP (like grants).
If there is a chance that the beneficiary may not attend post-secondary school, we recommend that you speak to an advisor to ensure you are able to maximize the remaining value in the plan and minimize any potential tax consequences.
Explore your grant options.
Children with RESPs can receive grants from two federal programs: the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). Under the CESG program, there is the Basic CESG and the Additional CESG. The CLB is only available to children who are from low-income families.
As a non-primary caregiver, you can apply only for the basic CESG. In this case, you'll have to provide both your and the child's Social Insurance Numbers (SINs).
That does not mean the child will have no access to other grants, such as the Additional CESG and CLB. You must obtain the consent of the parent(s) or primary caregiver by providing their signatures and SINs on the grant application forms, because the eligibility of receiving the Additional CESG and CLB, in particular, is determined by the primary caregiver's family net income.
There is an age limit for the child to receive grants under the two federal programs: for CESG, it's up to the calendar year when the child turns 17, and for CLB, it's up to the calendar year they turn 15, as long as they were born after January 1, 2004.
Start contributing savings, but pay attention to the contribution rule!
The maximum lifetime RESP contribution limit per child is $50,000. If there is more than one RESP plan for a child, different plan subscribers should make sure they communicate clearly on the amount they are contributing so that they don't over-contribute (which you'll be penalized for).
The RESP contribution process can be confusing—especially if a child has multiple RESP subscribers. An advisor can help you figure out the most efficient way contribute and receive grants, as well as the best way to maximize each dollar saved for your rising scholastic star.