What are Registered Education Savings Plans? .
Registered Education Savings Plans (RESP's) were created by the Federal Government to encourage Canadians to save for their children's education. Previous Federal Budgets have made RESP's a popular vehicle in which to save for a child's education because they offer certain tax benefits.
In 1998, the Federal Budget introduced the Canada Education Savings Grant (CESG), which makes saving in an RESP even more attractive. The RESP is an education savings plan in which contributions, although not tax-deductible, grow tax-deferred until the child enrolls in a qualifying educational program. At the point when the funds are withdrawn, the investment income becomes taxable in the hands of the child. Since the student (child) typically has no income, they pay little or no tax on the RESP income. The new CESG provides RESP holders with a grant of up to 20% on the first $2,000 in annual contributions to an RESP for beneficiaries up to the age of 18. That translates to an annual maximum grant of $400 per beneficiary for a total lifetime maximum of $7,200 (20% x $2,000 x 18 yrs.). The grant will be paid directly into the RESP.
Key benefits include:.
Parents, grandparents, aunts, uncles or friends may be permitted to contribute to the child's education (depending on the type of plan). .
Contributions to an RESP can be made any time of the year, however December 31st is the calculation deadline for the CESG. .
There are no foreign content restrictions on investments held in an RESP. .
RESPs can be established as a Single or Family beneficiary plan, depending on the options available from the institution. Most RESPs offered are Family plans. One of the main benefits of the Family beneficiary plan is that it allows more than one beneficiary to be named under the plan as long as each beneficiary is related to the subscriber (i.e. contributor) by blood or adoption.