Savings Plans (RESPs) Guide

A Registered Educations Savings Plan (RESP) is a type of savings account that helps you save for your child's post secondary education.

The plan encourages Canadians to save for post secondary education, by providing tax benefits and government grants. Such grants include: the Canada Education Savings Grant, Canada Learning Bond, and other grants offered by provincial education savings program.

There are three parties involved with an RESP: a subscriber, a promoter, and a beneficiary. The subscriber is the person who makes contributions to the RESP (ex: the parent), the promoter is the institution that offers the RESP and manages the account (ex: your bank), and the beneficiary is the person who will ultimately receive the money from the RESP (ex: your child).

Once you've opened an RESP - your savings grow tax free (as long as you keep your money in the plan of course). If you're saving for a child that's under the age of 17, the federal government will contribute money into your RESP as a grant. Provincial grants are also available and vary by province.

An RESP is a great way to start saving for your child's post-secondary education as it provides you with a tax free way to save your money, plus there are a bunch of government grants offered exclusively through RESPs, including: the Canada Education Savings Grant and the Canada Learning Bond. Trust us when we say - those grants can really add up!

Not to mention that opening an RESP and setting up automatic transfers is a great way to help you stick to your savings plan.

There are also a wide range of investment options available for RESPs including: stocks, bonds, mutual funds, and GICs depending on your plan.

There are three main types:

1. Family Plan - you can name one or more beneficiaries of the RESP. The children must be related to the subscriber.

2. Individual Plan - This is for one beneficiary. The beneficiary does not have to be related to the subscriber.

3. Group Plan - your contributions are combined with those of other people. The amount of money each child gets is based on how much money is in the group account and on the total number of students of the same age who are in school that year. Each Group Plan will have it's own rules so be sure to read the terms and conditions carefully.

Speak with an RESP expert to find out which option is best for you.

Generally, there are no restrictions on who can open an RESP account for a child. It could be the parents, caregiver, grandparents, other relative or friend.

All subscribers under an RESP have to provide their social insurance number (SIN) to the promoter before the RESP can be registered.

Although RESPs are generally opened for a child, you might be surprised to know that you can actually open one for yourself, or for another adult.

In order to be eligible you will need to: (1) have a Social Insurance Number (SIN), and (2) be a resident of Canada.

You will need (1) a Social Insurance Number (SIN), and (2) an RESP Provider.

Most financial institutions will offer RESPs (i.e. banks and credit unions). You can also get an RESP through Scholarship Plan Dealers (companies that only sell RESPs).

For a complete list of companies offering RESPs and the government grants they promote, please visit this government site.

It is important to select your provider carefully; after all they will be responsible for managing your contributions and making payments to your beneficiary!

Helpful questions that you should ask your provider include:

• Are there any fees I will need to pay once I open an RESP? If so - for what, and how much?
• Is there a minimum balance I need to have?
• Will I need to make regular payments?
• What are my investment choices with this account (i.e. stocks, bonds, GICs, etc.)? What are the benefits of each, and can the value of my RESP go down?
• Can I withdraw money if I need it? If so - are there fees or penalties?
• Can I transfer the RESP to another person or provider? If so - what are the costs involved?

For a complete list of questions to ask, check out: http://www.canlearn.ca/eng/saving/resp/questions.shtml

The RESP promoter (ex: your bank) can make the following types of payments from an RESP. To illustrate each type, let's use an example where you (the subscriber) are saving for your child's (the beneficiary) education with an RESP provided by your bank (the promoter).

1. Educational Assistance Payments, EAP - Money paid by the promoter to a beneficiary to help with their post-secondary education. Includes earnings and grants only. To qualify the beneficiary must:

• be enrolled full-time or part-time in a post-secondary program
• be attending a post-secondary institution
• not be receiving regular full-time employment income (part-time or temporary jobs permitted)
• not be enrolled in an educational program as part of a work-related initiative

2. Accumulated Income Payments, AIP - Money paid from the promoter to the subscriber for income earned on the contributions they put into an RESP (including income earned on government grants).

3. Contribution refunds - Subject to terms and conditions, the promoter can return the contributions to the subscriber or the beneficiary when the contract ends or at any time before.

4. Payment to a designated educational institution in Canada - This type of payment is typically made if the plan is left with only a small amount of cash or if one or more of the requirements for EAP and AIPs are not met. In this case, if an amount is left in the plan it will be paid to a designated educational institution in Canada, or to a trust for such an institution.

5. Payment to a trust - to accommodate the transfer of property between RESPs

Some types of RESPs will require a minimum deposit while others do not. Make sure you check with your provider about this.

You can not deduct contributions to an RESP from you income on your tax return. However, the money that you contribute to an RESP will not be subject to tax as long as this money stays in the RESP savings plan. In addition, you cannot deduct the interest you paid on money you borrowed to contribute to an RESP.

When the time comes for the money to be paid out to your child (the beneficiary), they will need to include the EAPs in their income for the year in which they receive them. Since many students have little or no income, the money is often tax-free. The Canada Revenue Agency registers the education savings plan contract as an RESP, and lifetime limits of $50,000 are set by the Income Tax Act on the amount that can be contributed for each beneficiary.

If the child does not pursue post-secondary education, then you will be taxed on the interest that you earned, as well as any grants received. Please seek personal advice for any tax related questions about RESPs.

In most cases, you will get back all of your contributions that you made to the RESP if it is not paid out to your child (the beneficiary). You will be taxed on the interest that you earned, as well as any grants received. Please seek personal advice for any tax related questions about RESPs.

Remember, an RESP can stay open for up to 36 years, so the money can be used if the beneficiary decides to attend school later, it can also be transferred. Speak to your provider for options.

More than one beneficiary can be named with Family Pans. However with a Family Plan, each beneficiary must be related by blood relationship or adoption to each living subscriber or any deceased original subscriber.

Children up to the age of 17 are eligible for the grant, as long as they have an RESP and are a Canadian resident. Special rules apply for children between the ages of 15 and 17, so please speak with an RESP expert about this.

Basic CESG is a payment of 20% on RESP contributions up until your child turns 17.

Plus there is also additional CESG that you might qualify for - which is dependent on the income level of the primary caregiver. Additional CESG is either 10% or 20% on the first $500 or less of your annual RESP contributions up until your child turns 17.

For more information, check out: http://www.canlearn.ca/eng/saving/cesg/index.shtml

All you need to do is open the RESP account and start making contributions. Your RESP provider will then apply for the grant on your behalf.

Arrange a call back from an RESP expert today.