The Registered Education Savings Plan – A primer

by JamieList on February 1, 2010

The Registered Education Savings Plan, or RESP, is likely the best opportunity that a parent (or other relative) can establish to contribute to a child’s future education, and to help with the parents’ financial planning into the future.  Here are some things that you should know:

  • Almost anyone can deposit money into an RESP, as long as the parents agree
  • The money deposited into the plan grows tax free
  • The money deposited into the plan gets a government grant
  • You can invest it how you choose, or with the help of a qualified investment professional
  • The funds in the plan can be used for a wide range of post-secondary education, such as university, college, trade school or other programs that may qualify
  • If unused, the a portion of the balance of the RESP may be transferrable back to the parents later in life

So – sounds like a good deal?  It is.  The government established this program to encourage parents to save for their children’s future, and the government grant program (the Children’s Education Savings Grant, or CESG) creates a powerful incentive.  Here are the rules:

  • You can deposit up to $2,500 each year to get the “current year” grant, or 20 cents per dollar, per child.
  • You can deposit a lifetime maximum of $50,000 into the plan, per child.
  • You can receive a maximum of $7,200 of grant, per child, by the year in which they turn 17.
  • Note that there are special rules for beneficiaries (i.e. the kids) on the plan who are 16 or 17 years old, so consult a professional to discuss if your older child qualifies
  • There are added benefits for families with family incomes as described below:
    • incomes of less than approx. $77,000 there is an additional GESG incentive of $50 for the first $500 deposited
    • family incomes less than approx. $38,000 there is an total additional GESG incentive of $100 for the first $500 deposited in addition to qualifying for the Canada Learning Bond, which is $500 in the first year your family qualifies, plus $100 each year after

The math is fairly good for in favour of starting this plan.  If you look at the grant as free money (which is it), you are getting an automatic 20% return on the first $2,500 you put into the plan each year, and that grows tax-free.  In the current market, that seems a fairly strong argument to use this structure to plan for the future!

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