RESP (Registered Education Savings Plans)

The Federal government has provided special tax benefits and incentives for those saving for post-secondary education. While you do not get a tax deduction for contributions to a Registered Education Saving Plan (RESP), the investment income earned by the RESP is not subject to income tax until the funds are withdrawn. When the funds are withdrawn, the investment income must be used for the designated educational purposes and is taxable to the student, not the contributor. An RESP will:

►    Allow you to take advantage of the Canada Education Savings Grant.

►    Generate a greater pool of savings over a shorter period of time since your savings are tax-sheltered until withdrawn.

►   Reduce your future taxes. It allows you to shift the growth generated by your contributions to your children, where it will be taxed at a lower rate when withdrawn.

►    Enable you to invest your savings based on your individual needs, so you can achieve the right balance between long-term growth and protection of capital.

The Canada Education Savings Grant

At present, the federal government provides a Canada Education Savings Grant (CESG) equal to 20% of the first $2,500 of annual contributions to an RESP for children up to the age of 17. The maximum annual grant is $500. The total lifetime maximum grant is $7,200 per child.

Any unused grant “contribution room” can be carried forward to future years. In order to receive the grant, the child must have a Social Insurance Number.

Individual or Family RESP?

Talk to financial planner about whether an individual or family RESP is more appropriate for you. Any one child can be the beneficiary of an individual plan. A family plan may have more that one beneficiary, but all must be directly related to the subscriber by blood or adoption.

The information contained in this commentary is designed to provide you with general information only, and is not intended to be comprehensive advice applicable to the circumstances of any individual. We strongly urge you to seek professional assistance before acting upon information included herein.