RESP: Registered Education Savings Plan (Canada)

What is an RESP?

RESPs are registered education savings plans that permit savings to grow tax-free until the beneficiary is ready to go full-time to college, university, or any other eligible post-secondary educational institution. When the student begins to use the RESP for education, the income accumulated on the subscriber contributions and the grant as well as the grant itself become taxable. However, because the student typically has little other income, he or she effectively pays little or no tax on RESP income.

The Government of Canada has made Registered Education Savings Plans (RESPs) a clear choice for families wishing to save for their children's future education costs. There are several types of RESPs - Family, Non-Family, and Group Plans. You can consult with RESP promoters to decide which plan is right for you. Browse the most current list of financial institutions that are offering RESPs.

For more information, contact the Canada Customs and Revenue Agency (CCRA) web site.

Important Facts About Registered Education Savings Plans

Any child can be the beneficiary;

Parents, grandparents, relatives or friends may put a combined total of $4,000 a year into RESPs in respect of a particular beneficiary;

Subscribers can contribute for up to 22 years after a non-family plan has been opened and up to the year in which the beneficiary turns 21 years of age in a family plan;

Contributions to all RESPs on behalf of a beneficiary are subject to a lifetime limit of $42,000;

Contributions made to an RESP are not tax deductible, and are not taxed when returned to the subscriber;

The money in an RESP grows tax-free until the beneficiary is enrolled full-time in a qualifying program at a college, university or other recognized post-secondary educational institution

Then, the beneficiary can use Educational Assistance Payments paid from the RESP to help finance his/her post-secondary education;

If the beneficiary does not go on to full-time studies, another beneficiary can be named (subject to the terms of the plan). However, in order to keep the CESG, the new beneficiary must be under 21 years of age and either the new beneficiary is a brother or sister of the former beneficiary or both the new and old beneficiaries are under 21 years of age and are related to the subscriber. RESPs also now permit the payment to the subscriber of Accumulated Income Payments (AIP), or the roll over of the income to a subscriber's or subscriber's spousal Registered Retirement Savings Plan, under certain conditions.

An RESP must be terminated by the end of the 26th year.

See Also RESP FAQ

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