THE BASICS

What is an RESP?

-an investment plan that helps families accumulate money for post-secondary education through regular contributions and the receipt of the Canadian Education Savings Grant (CESG). Similar to RRSP”S, an RESP offers tax-sheltered growth of your investment until the money is withdrawn for the beneficiary continuing with post-secondary studies. The max annual contribution to an RESP is $4000 per beneficiary with a lifetime contribution limit of $42,000 per beneficiary. There are penalties for over contributions greater that $2000.

What is the CESG?

-it is a federal government incentive to promote saving for a child’s (beneficiary’s) education. The CESG is deposited directly into the RESP annually and is equal to 20% of the annual contributions to an RESP, to a maximum of $400 per year/per beneficiary with a lifetime CESG max of $7200.

-20% of $2000 is $400, the max CESG contributed to an RESP.

-children are eligible for CESG up to the age of 17, children ages 16 and 17 are only eligible if: (1) a min of $100 in contributions made to an RESP in any 4 years prior to turning 16. (2) $2000 in the year prior to turning 16

Tax-sheltered until when?

-an RESP is tax-sheltered until the beneficiary qualifies for, and withdrawals Education Assistance Payments (EAP) for a Qualifying Educational Program (QEP). Unlike an RRSP, there is no accompanying tax deduction when the student begins to use the RESP for education, the income becomes taxable. However, because the student typically has little other income, and the benefit of tuition credit, the student effectively pays little or no tax on RESP income.

Who are Subscribers and Beneficiaries?

-the subscriber is the individual who contributes to the plan for the beneficiary and can do so up to 21 years after the year the plan is opened.

-the beneficiary is the individual named by the subscriber who receives the benefit. Beneficiaries can be changed without restriction.

THE ACCRONYMS

CRA – Canadian Revenue Agency
RESP – Registered Education Savings Plan
CESG - Canadian Education Savings Grant
QEP - Qualifying Educational Program – a program not less than 3 consecutive weeks in duration with program requiring each student completing at least 10 hrs of study per week.
EAP - Education Assistance Payments – the payment of accumulated earnings and grants paid to beneficiary when enrolled in a f/t QEP.
AIP – Accumulated Income Payments – earnings from principle and from the grant if abeneficiary does not attend a QEP. Subscriber must repay CESG.
SIN – required to set up an RESP, you must have a Social Insurance Number for the beneficiary to set up an RESP.

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