Blue Swan
Investments

A Registered Education Savings Plan (RESP) is a special savings account for parents who want to save for their child's education after high school.

Anyone can open an RESP account for a child—parents, guardians, grandparents, other relatives or friends.

While you can open a plan for a child, you can also name yourself or another adult as the beneficiary.

An RESP allows adults to earn growth on their RESP tax-free. You can make contributions into an RESP until 31 years after you first opened it. After that time, however, you can transfer savings from other RESPs into a single plan. You would then have until the end of the 35th year after the plan was first opened to use the funds before the RESP expires (unless otherwise specified in the terms for your plan).

Is there a Grant provided for contributing into RESP?

Canada Education Savings Grant (CESG) is the money that is added by the Federal Government to a Registered Education Savings Plan (RESP). Each year, the CESG provides 20% of the Registered Education Savings Plan (RESP) contributions of up to $2,500. That means the CESG can add a maximum of $500 to an RESP each year.

Children from middle- and low-income families might be eligible to get the Additional amount of CESG.

If eligible, that means an extra 10% or 20% is added to the first $500 contributed to an RESP each year.

The Additional amount of CESG may be: up to $100 if the 2023 adjusted income is $53,359 or less ($500 x 20% = $100) and up to $50 if the 2023 adjusted income is greater than $53,359 and up to $106,717 ($500 x 10% = $50).

The maximum amount of CESG, including the Additional amount, a child can get is $7,200

Also there is Canada Learning Bond (CLB) for children from low-income families. The Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes: $500 for the first year of eligibility AND $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15). The beneficiary must be under the age of 21 at the time of application. If the beneficiary does not pursue post-secondary education, the CLB is returned to the government.

British Columbia Training and Education Savings Grant (BCTESG) is for families in British Columbia to start planning and saving early for their children’s post-secondary education or training programs through RESP. To help, the BC Government will contribute $1,200 to eligible children. To be eligible for the $1,200 BCTESG:

- Parent and child must be residents of B.C.

- Child must have been born in 2006 or later.

- Child must be named as a beneficiary of a RESP with a participating financial institution.

Understanding Yearly and Lifetime RESP Contribution Limits

From 2007 to present:

- No annual contribution limit;

- Lifetime contribution limit: $50,000 (including all contributions made prior to 1998).

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. Any contributions over and above these amounts will not receive any CESG for the current year or any subsequent years. All contributions exceeding $50,000 limit will not attract any grant even if the maximum $7,200 of grant is not reached.

What if I over-contribute in to RESP?

An over-contribution occurs when the total contributions made to a beneficiary in one or more RESP(s) exceed the lifetime limit of $50,000. When an over-contribution occurs, you will be required to pay tax in the amount of one percent per month on your share of the over-contribution until it is withdrawn.

Under normal circumstances, a withdrawal of contributions will require a repayment of the CESG, except when:

- you withdraw contributions to eliminate an over-contribution; and

- the total over-contribution is not more than $4,000 at the time of withdrawal; or

- the RESP beneficiary is eligible for an Educational Assistance Payment.

If the total over-contribution is more than $4,000 at the time of withdrawal, the CESG is repayable on the entire amount withdrawn. If this happens, the grant room is not restored by the repaid amount of CESG.

Can I open multiple RESP accounts?

There is no limit on the number of plans from different institutions one individual can have in his or her name, but there is a lifetime contribution limit of $50,000 per beneficiary. This limit includes all contributions made in all RESPs combined. CESG payments are made to a single plan on a first-come, first-served basis. For example, if you contribute the entire $2,500 through one RESP provider on January 15, and later put in a subsequent $2,500 through a different provider on February 15, the CESG will be deposited into the first plan you contributed to.

When contributions are made on the same date the amounts are split in half between two plans, each plan receives one half of the CESG. If you contribute through monthly instalments, the CESG is paid into each plan until either the maximum grant that can be paid in a year, or the lifetime contribution limit, is reached.

What if I missed out Grants from Previous Years?

To maximize the CESG, you will want to contribute $2,500 per year per beneficiary for 14 years, and then top it off with an extra $1,000 in the 15th year. This is because the total CESG a child can receive is $7,200.

If you missed a year or started late, you can contribute more than $2,500 to retroactively claim grants. You are eligible to receive an additional $500 per year in CESG if you missed previous years set of grants. In short, you can catch up for one previous year at a time by contributing more than $2,500 per year. For example:

Contribute on 9th year : Can also contribute for 8th Year

Contribute on 10th year : Can also contribute for 7th Year

Contribute on 11th year : Can also contribute for 6th Year

Contribute on 12th year : Can also contribute for 5th Year

Contribute on 13th year : Can also contribute for 4th Year

Contribute on 14th year : Can also contribute for 3rd Year

Contribute on 15th year : Can also contribute for 2nd Year

Contribute on 16th year : Can also contribute for 1st Year

What benefits does RESP bring to Child who continues Education after High School?

• The money grows tax-free while it is in RESP.
• You do not get a tax deduction for the money you put into an RESP but the money that your investment earns while it is in the RESP will not be taxed until money is taken out to pay for your child's education.
• Money paid out of the RESP as an Educational Assistance Payment is taxed in the hands of the student. Since many students have little or no other income, they can usually withdraw the money tax-free.
• The money that you have put in the RESP is returned to you, tax-free

There is list of designated educational institutions at: https://www.canada.ca/en/employment-social-development/programs/designated-schools.html

What if Children decides not to continue Education after High School?

You will not be taxed on the amount you contributed to the RESP, but you will have to pay taxes on the money that you earned in your plan as growth. This money is called "accumulated income." It will be taxed at your regular income tax level, plus an additional 20 percent.

The money that you have put into the RESP is returned to you. You may be able to reduce the taxes you have to pay by transferring your accumulated income to either your or your spouse's Registered Retirement Savings Plan (RRSP).

The CESG can be shared with a brother or sister if they have grant room available—otherwise, the grant must be returned to the Government of Canada.

If the child chooses not to continue their education after high school, you can wait a while to see if they change their mind. RESP accounts can stay open for up to 36 years. If you are sure the beneficiary will not be using the money in the future, you can transfer the money from one RESP to another.

What happens to savings in an RESP when it closes / expires?

Any savings that remain in your RESP when it closes will be handled as follows:

• money received from either the Canada Education Savings Grant (CESG) or the Canada Learning Bond (CLB) will be returned to the Government of Canada; and

• any personal savings in the account will be returned to the person who opened the plan.

The interest earned on both the personal savings as well as any government grants or bonds will be returned to you if all of the following apply:

• all children named in the plan are at least 21 years old and are not eligible for an Educational Assistance Payment;

• the subscriber is a Canadian resident; and

• the RESP was opened at least 10 years ago.

In this case, the money withdrawn is called an Accumulated Income Payment. When withdrawn, the money will be taxed at your regular income tax rate, plus an additional 20 percent. You may also transfer it into your Registered Retirement Savings Plan (RRSP) or your spouse’s RRSP.

Contact us to Learn more about how you can contribute to RESP for your child and maximize your Savings for your Child's future.