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Chances are, if you have a child who'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. Whether you've been planning for years or are just starting to think about saving for your child's education, let's take a look at the key points of RESPs in Alberta.
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 biological 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 government grants are available to assist in saving for my child’s education?
The Canada Education Savings Grant (CESG) is a Government of Canada grant 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 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. Depending on your family’s net household income, the children may be eligible for additional CESG. There are eligibility restrictions for children aged 16 and 17. Learn more about that on the Government of Canada's CESG page.
The Canada Learning Bond (CLB) is a Government of Canada incentive of up to $2,000 for modest-income families. There are no contributions required to generate CLB. Eligibility is based on the number of children and the adjusted income of the primary caregiver. If you are eligible, once the RESP has been opened, a $500 bond will be deposited along with $25 to compensate for the cost of opening the RESP. Following the initial payment, $100 payments will be paid for each year of eligibility until the calendar year that the beneficiary turns 15.
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?
If the RESP beneficiary does not attend a post-secondary school, any government incentives will have to be repaid to the government. Your RESP contributions can be fully withdrawn. However, the income earned in the RESP cannot be withdrawn until one of the following conditions is met:
- The payment is made after the year that includes the ninth anniversary of the RESP and each individual who is or was a beneficiary has reached 21 years of age and is not currently eligible to receive an EAP; or
- The payment is made after the year that includes the 35th anniversary of the RESP, unless the RESP is a specified plan in which case the payment is made after the year that includes the 40th anniversary of the RESP; or
- All beneficiaries under the RESP are deceased.
Upon withdrawal, this income is fully taxable to the subscriber at their marginal tax rate and an additional 20% tax is applied. If the subscriber has RRSP contribution room available, they can reduce the amount of tax payable by instead transferring the funds to an RRSP (subject to a lifetime maximum of $50,000).
If you have questions about your RESP, contact us and we can walk you through your options.