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RateSupermarket.ca > Money > Registered Educations Savings Plan (RESP) > RESP guide
A Guide to Registered Educations Savings Plans (RESPs) in Canada
Find out all you need to know about RESPs (Registered Educations Savings Plan) in Canada with our handy guide.
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RESP guide index
Click on a quick-link below to go to that topic right away.
What is a RESP? >>
How does a RESP work? >>
What are the Benefits of having an RESP? >>
What are the main types of RESPs? >>
Who can open an RESP? >>
Who can become a beneficiary? >>
What information do I need to open an RESP? >>
Who offers RESPs >>
What should I consider when selecting an RESP provider? >>
What are the types of payments made from an RESP >>
Do RESPs require a minimum deposit? >>
How is an RESP taxed? >>
What if the RESP is not paid out to the beneficiary? >>
Can you name more than one beneficiary? >>
Who is eligible for the Canada Education Savings Grant? >>
How much money does the Canada Educations Savings Grant give out? >>
What is the application process for the grant? >>
Where can I get more information about RESPs and Canada Education Savings Grants? >>
What is a RESP?
A Registered Educations Savings Plan, RESP, is like a savings account. 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.
How does an RESP work?
A subscriber enters into a contract with a promoter. The subscriber is someone who makes contributions to the RESP (for example the parents of the beneficiary or another relative). The promoter is the organization offering the RESP and responsible for managing the account (for example a bank or credit union). The beneficiary is the person who will receive the money from the RESP. The subscriber will make contributions to the RESP. These contributions may be topped up with government grants (if applicable). Contributions are tax free. The promoter is then responsible for making payments to the beneficiary to help finance his/her post-secondary education. These payments are made in accordance to the terms of the RESP.
What are the Benefits of having an RESP?
A college or university education can get very expensive, but if you start to save early it can be more manageable. An RESP is a great way to start saving for a child's post-secondary education. With the help of government grants offered exclusively through RESPs, such as the Canada Education Savings Grant and the Canada Learning Bond, your savings can grow quickly.
What are the different types of RESPs?
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.
Who can open an RESP?
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.
Who can become a beneficiary?
Under proposed changes, an individual can be designated as a beneficiary of the RESP only if:
- the individual's Social Insurance Number (SIN) is given to the promoter before the designation is made; and
- the individual is a resident in Canada when the designation is made.
There are a few exceptions to this, so please speak with a RESP expert for full details.
What information do I need to open an RESP?
To open an RESP you need to choose a provider. The only information that you need is a Social Insurance Number (SIN).
Who offers RESPs
Most financial institutions will offer RESPs (i.e. banks and credit unions), as well as certified financial planners. For a complete list of companies offering RESPs and the government grants they promote, please visit this government site.
What should I consider when selecting an RESP provider?
It is important to select your provider carefully; after all they will be responsible for managing your contributions and making payments to the beneficiary. Helpful questions that you should ask your provider can be found here: http://www.canlearn.ca/eng/saving/resp/qrp.shtml.
What are the types of payments made from an RESP?
The promoter can make the following types of payments:
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
Do RESPs require a minimum deposit?
Some types of RESPs will require a minimum deposit while others do not. Make sure you check with your provider about this.
How is an RESP taxed?
The money that a subscriber contributes to the RESP will not be subject to tax as long as this money stays in the savings plan. Subscribers can not deduct contributions from their income on their tax return. 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 the beneficiary (assuming the child continues education), the payments are called Education Assistance Payments (EAPs). The beneficiary 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 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 well the money was in the plan (not the contributions). This is taxed at regular income tax rates plus 20 percent.
Please seek personal advice for any tax related questions about RESPs.
What if the RESP is not paid out to the beneficiary?
In most cases, the subscriber will get back all of the contributions to the RESP at the end of the contract if it is not paid out to the beneficiary. This money is not considered income for the subscriber, so income taxes are not applicable (excluding interest gained on the contributions).
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.
Can you name more than one beneficiary?
More than one beneficiary can be named with Family plans. Each beneficiary must be related by blood relationship or adoption to each living subscriber or any deceased original subscriber.
Who is eligible for the Canada Education Savings Grant?
Children up to the age of 17 are eligible for the grant, as long as they have an RESP and is a Canadian resident. Special rules apply for children between the ages of 15 and 17, so please speak with an RESP expert about this.
How much money does the Canada Educations Savings Grant give out?
For the first $500 contributed to the RESP, the Canada Education Savings Grant will give:
- up to $200, if your net family income is $39,065 or less
- up to $150, if your net family income is between $39,065 and $78,130, or
- up to $100, if your net family income is more than $78,130.
If you save more than $500 annually, you could receive up to $400 on the next $2,000 saved. The net family income amounts shown are for 2010.
What is the application process for the grant?
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.
Where can I get more information about RESPs and Canada Education Savings Grants?
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