A Registered Education Savings Plan (RESP) is a savings vehicle generally used by parents to save for their children’s post-secondary education. More precisely, it is a contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber makes contributions that accumulate tax-free earnings. In return the promoter agrees to use the accumulated funds to pay educational assistance payments to one or more beneficiaries designated by the subscriber. An RESP is an ESP that has been registered with Canada Revenue Agency.
Types of Plans
Non-Family Plans: These plans can only have one beneficiary. There are no restrictions on who can be a beneficiary under these plans. This means that anyone can be the beneficiary of a non-family plan. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.
Family Plans: These plans can have one or more beneficiaries. However, each beneficiary must be connected by blood or adoption to each living subscriber under the plan or have been connected to a deceased original subscriber. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.
Group Plans: These plans are usually offered by non-taxable entities like foundations. These plans are administered on an age group concept i.e. all contracts for beneficiaries who are 9 years old are administered together. Contributions to a Group Plan are calculated by the Foundation’s actuary. The amount and frequency of these contributions stay the same as long as the beneficiary has not attained 18 years old.
RESPs and Income Taxes: Unlike the treatment of Registered Retirement Savings Plan (RRSP) contributions, a person making contributions to a RESP a subscriber does not receive a tax deduction. Because of this, the subscriber’s contributions are not taxed when they are returned. The contributions always remain the property of the subscriber.
If you are interested in this type of plan for someone your first step is to acquire a Social Insurance Number (SIN) for the person to be named in the plan and then contact us and we’ll do the rest.
Canada Education Savings Grant
The Canada Education Savings Grant (CESG) is a grant from the Government of Canada paid directly into a beneficiary’s Registered Education Savings Plan (RESP). It adds 20 percent to the first $2,500 in contributions made into an RESP on behalf of an eligible beneficiary each year. This means the Grant can be as much as $500 each year per beneficiary and over the years could amount to a total of $7,200.
Together with the accumulating investment income, the Canada Education Savings Grant will be available to be paid to a student as part of the Educational Assistance Payment.
The income of an RESP can be paid out to a beneficiary once the beneficiary is enrolled as a full-time student in a qualifying educational program at a post-secondary educational institution. Such payments are referred to as Educational Assistance Payments (EAPs). A specific portion of each EAP will be considered to be attributable to CESGs paid into the plan.
The CESG portion of an EAP will be based on the ratio of CESGs in the plan to total investment earnings in the plan, and will reduce the remaining balance in the plan’s CESG account. If the beneficiary is a non-resident at the time of receiving an EAP, there is no grant paid.
Braun Financial Services can provide you with a Registered Education Savings Plan that fits your family and budget. For more information on RESP’s Contact Us.