Some key facts on RESP

The Guardian (Charlottetown) - - BUSINESS - This col­umn, writ­ten and pub­lished by In­vestors Group Fi­nan­cial Ser­vices Inc., and In­vestors Group Se­cu­ri­ties Inc. presents gen­eral in­for­ma­tion only and is not a so­lic­i­ta­tion to buy or sell any in­vest­ments. Con­tact your own ad­viser for spe­cific ad­vice ab

A Reg­is­tered Ed­u­ca­tion Sav­ings Plan (RESP) is a great way to save for a child’s post-sec­ondary ed­u­ca­tion. Here are some ba­sic facts so you’ll be sure to get the most from an RESP.

In­vest­ments that are RESP-el­i­gi­ble al­low sav­ings to grow taxfree un­til your child en­rolls in a qual­i­fy­ing post-sec­ondary ed­u­ca­tion pro­gram. There are three types of RESPs: - A Fam­ily Plan al­lows you to name mul­ti­ple ben­e­fi­cia­ries, each of whom must be re­lated to you. This in­cludes sib­lings, half­si­b­lings and step-sib­lings.

- An In­di­vid­ual Plan al­lows you to name one ben­e­fi­ciary, who does not have to be re­lated to you.

- A Group Plan pools the earn­ings on your sav­ings with those of other peo­ple, and the amount your child re­ceives to pur­sue post-sec­ondary ed­u­ca­tion is based on how much money is in the pool and on the to­tal num­ber of stu­dents in that pooled age group.

The Cana­dian Ed­u­ca­tion Sav­ings Grant (CESG) is a fed­eral pro­gram that pro­vides a match­ing grant for each RESP con­tri­bu­tion made for an el­i­gi­ble child. It is gen­er­ally worth 20 per cent of the first $2,500 of an­nual con­tri­bu­tions ($500/year), but depend­ing on fam­ily in­come and prior con­tri­bu­tion history, could be worth up to $1,100/year.

The Canada Learn­ing Bond (CLB) is a fed­eral pro­gram that pro­vides $500 bond to an RESP for a child whose fam­ily re­ceives the Na­tional Child Ben­e­fit Sup­ple­ment, and $100/year for up to 15 sub­se­quent years.

You can au­tho­rize Ed­u­ca­tional As­sis­tance Pay­ments (EAPs) from the RESP to the stu­dent ben­e­fi­ciary as soon as the stu­dent en­rolls in an el­i­gi­ble full- or part-time post-sec­ondary ed­u­ca­tion pro­gram. EAPs con­sist of gov­ern­ment bonds and grants and plan ac­cu­mu­lated earn­ings; they do not in­clude con­tri­bu­tions. EAPs are taxed to the stu­dent ben­e­fi­ciary and must be used to fur­ther the stu­dent’s post-sec­ondary ed­u­ca­tion.

You can with­draw your RESP con­tri­bu­tions tax-free at any time for any pur­pose, but if you with­draw con­tri­bu­tions at a time when your stu­dent is in­el­i­gi­ble for an EAP, you will be re­quired to re­pay CESG and per­haps other pro­vin­cial/ter­ri­to­rial grants1.

Fam­ily and In­di­vid­ual plans gen­er­ally al­low sib­lings un­der 21 to share the con­tri­bu­tions, CESG, and ac­cu­mu­lated earn­ings with­out penalty. These shar­ing rules are quite com­plex so con­tact your plan provider for the de­tails.

The Canada Ed­u­ca­tion Sav­ings Grant and Canada Learn­ing Bond (CLB) are pro­vided by the Gov­ern­ment of Canada. CLB el­i­gi­bil­ity de­pends on fam­ily in­come lev­els. Some prov­inces make ed­u­ca­tion sav­ings grants avail­able to their res­i­dents.

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