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Registered Education Savings Plan (RESP) FAQs
Q: What is a Registered Education Savings Plan?
A: It is a tax-deferred savings plan through which the federal government enables Canadians to save and invest for the costs of post-secondary education.
Q: What are the benefits of an RESP?
A: (1) Investment growth is tax-deferred and taxed in beneficiary student’s hands;
(2) Government grants that help increase your saved amount.
Q: Who can contribute to RESPs? Can a beneficiary have multiple RESP?
A: Anyone can open and be an RESP subscriber (i.e. account holder). And yes, each beneficiary can have more than one RESP to their benefit. It’s vital to ensure the aggregate contributions to one beneficiary do not exceed the lifetime maximum.
Q: What is the lifetime contribution maximum?
A: $50,000 per beneficiary.
Q: Is there an annual contribution limit?
A: No, as long as the total contributed amount does not exceed the lifetime maximum. Prior to 2007, there was a limit of $4,000 per beneficiary per year.
Q: What happens if the lifetime contribution maximum is exceeded?
A: Any amount exceeding the lifetime limit will be charged a penalty of 1% per month until corrected. If there is more than one RESP open for a beneficiary, you must keep track of all contributions made on behalf of the beneficiary. The penalty is shared between all contributors.
Q: Is my contribution tax-deductible?
A: No. Because only the investment growth is tax-deferred to your child’s future income, the contributions are not tax-deductible.
Q: What is the difference between an Individual Plan RESP and a Family Plan RESP?
A: An Individual Plan can have only one beneficiary. The beneficiary can be anyone and does not have to be related by blood/adoption. You can include yourself or a spouse/common-law partner as a beneficiary under such a plan. There is no age restriction for the beneficiary.
A Family Plan can have more than one beneficiary. However, each beneficiary must be related by blood/adoption to the person opening the plan and must be under the age of 21. Beneficiaries can include children, grandchildren and siblings but cannot include nephews/nieces.
Q: Can I transfer cash and/or assets between two RESPs?
A: Yes, though it is critical that both the beneficiaries and the subscriber(s) are the same on both RESP accounts. All proper paperwork must be properly completed and executed as part of the transfer.
Q: What investment choices are available for RESPs?
A: Generally, savings deposits, Guaranteed Investment Certificates (GICs), exchanged-traded funds (ETFs), stocks, mutual funds, among other holdings.
Q: What is the Basic Canada Education Savings Grant (CESG)?
A: It is a grant introduced by the federal government in 1998 to help boost education savings. It is available to beneficiaries 17 years of age and under.
From 1998 to 2006, the CESG was equal to 20% of the first $2,000 contributed to an RESP, to a maximum of $400 per beneficiary per calendar year. As of January 1, 2007, the maximum assisted contribution amount increased to $2,500, which resulted in a maximum of $500 per beneficiary per calendar year.
Q: Is there a lifetime CESG maximum that can be received?
A: Yes. $7,200 per beneficiary.
Q: Does CESG room accumulate for every beneficiary, even without an existing RESP?
A: Yes. It accumulates from the year of birth until the end of the calendar year of the beneficiary’s 15th birthday.
Q: Can unused CESG amounts be carried forward? What if contributions are not made in a given year?
A: Yes. Any grant not received in previous years due to low or no contribution can be made up in a future year. However, note that only one retroactive year can be received per current year of contribution.
As of January 1, 2007, an annual contribution of $5,000 may be made to receive a maximum of $1,000 CESG as a way to catch up on previous missed years. For example, while there is no annual contribution limit this current year, you can make a contribution of $5,000 (i.e. $2,500 for this year and $2,500 for any year missed since 2007) and still receive a total CESG of $1,000 (i.e. $500 for this year and $500 for any missed year since 2007). Any amount contributed over the $5,000 this year can remain in the RESP but it will not receive a grant.
Q: Are there other conditions for consideration with regards to the CESG?
A: Yes. The CESG is paid on contributions for beneficiaries up to the end of the calendar year of their 17th birthday. For beneficiaries turning 16 or 17 in a given calendar year, the CESG will only be paid on a contribution if:
(a) there have been contributions for the beneficiary to any RESP of at least $100 per year in any of the four years prior to the calendar year the beneficiary turned 16 and these contributions have not been withdrawn, or
(b) there have been contributions for the beneficiary to any RESP of at least $2,000 prior to the calendar year the beneficiary turned 16 and these contributions have not been withdrawn.