Planning for the Future RESPs - Education Savings

A Registered Education Savings Plan (RESP) is a government-approved plan for the purpose of providing post-secondary education funding for a beneficiary. Income earned within the plan is not taxed until it is withdrawn.

A post-secondary education is critical in an increasingly competitive job market. Each year, fewer high school graduates are in a position to afford to continue their education. With the costs of higher education increasing almost every year, early planning is essential.

Average cost of University Education

• $61,800 (Human Resources Canada 2003)

Investing in an RESP will assist your family to have more financial freedom to choose their future. By starting now, you can grow your education funds by making affordable, convenient monthly deposits. Planning today for tomorrow is the smart way to realize your family's education goals.

• Annual: $4,000 per beneficiary
• Lifetime: $42,000 per beneficiary

The subscriber is the registered owner of the plan and can be an individual or an individual and his/her spouse. Only the subscriber can make contributions to an RESP and these contributions are not tax deductible.

The named beneficiary is eligible to receive the Educational Assistance Payments from the plan. There is a limit of one beneficiary per plan, except under a Family Plan, which provides for multiple beneficiaries. The beneficiaries of a Family Plan must be "related" to the subscriber(s).

The CESG program allows eligible RESP beneficiaries to receive grant monies based on the annual contributions paid into the plan. The government will contribute 20% annually on the first $2,000 deposited into an RESP for children up to age 18*.

All children under the age of 18* and resident in Canada will automatically accumulate CESG contribution room.

• Annual CESG Maximum: $400 per beneficiary
• Lifetime CESG Maximum: $7,200 per beneficiary

Additional Canadian Education Savings Grant (ECESG)

The additional ECESG is payable on the first $500 contributed, on or after January 1, 2005, in respect of beneficiaries from whom a Children's Special Allowance is paid or who are from families with an income under $72,756*.

An additional CESG rate of 10% is available for beneficiaries who are dependants of an individual primary caregiver (PCG) whose family net income is between $36,378 and $72,756*, OR 20% is available for beneficiaries who are dependants of an individual PCG whose family net income is $36,378* or less, or beneficiaries who are dependants of a public PCG receiving payments under the Children's Special Allowances Act.

*based on 2005 income brackets

Canada Learning Bond (CLB)

All children born on or after January 1, 2004, who are under the care of a Public Trustee and for whom a Children's Special Allowance is paid, or for whom the family is eligible to receive the National Child Benefit Supplement (NCBS), will be able to receive the CLB. An initial $500 will be paid directly into the RESP and $100 for any subsequent year of eligibility up to and including the beneficiary's 15th year totalling to a possibility of $2000.

CLB accumulates for each year of eligibility, regardless of whether an RESP has been opened in the child's name or not. Once the RESP is opened and the CLB requested, all accumulated CLB can be paid to the eligible beneficiary. Accumulated CLB must be requested before the beneficiary's 21st birthday.

Educational Assistance Payments may be drawn from the RESP to cover expenses associated with the pursuit of higher education in a qualified program - tuition fees, textbooks, room and board, etc. These payments are taxable to the beneficiary.

If the beneficiary does not enroll in post-secondary education, you have the following options for the plan.

Note: An RESP can exist for a maximum of 25 years after the year it is opened. At this time, the only available option is #3.

1. Change the plan beneficiary**.
2. Transfer funds to another RESP where you are the subscriber**.
3. Collapse the plan.

If you choose #3, you will have to return the unused CESG monies to the government. The principal monies are considered a refund of contributions and can be withdrawn without penalty. The following options are available for disbursement of income earned within the plan:

• Transfer funds to the subscriber's RRSP**
• Withdraw the funds**
• Transfer funds to the Designated Educational Institution

Most Canadian post-secondary institutions and programs, including correspondence courses, qualify for the purpose of receiving RESP Educational Assistance payments. Certain foreign post-secondary institutions may qualify.

• Additional education funding is provided by the Canadian Education Savings Grant (CESG)
• Income earned within the plan is not taxable until the beneficiary enrolls in post-secondary education and withdraws funds for educational purposes. The beneficiary will usually have a lower marginal tax rate.
• Long-term planning for a beneficiary to attend a post-secondary institution
• RESPs are available as single or family plans.

Note: To qualify for the Canada Education Savings Grant, your child requires a Social Insurance Number. Applications for Social Insurance Numbers can be obtained from Human Resources Development Canada - Employment Insurance Offices.

*Some restrictions apply for RESP beneficiaries age 16 and 17.

**Some restrictions and/or penalties apply