The West Coast Wire

Tips on how to best use your child’s education plan

- CHRIS IBBOTSON askmoneyla­dy@gmail.com @SaltWireNe­twork Written by Christine Ibbotson, author, finance writer, national radio host, and now on CTV Morning Live and CTV News at 6. Send your money questions (answered free) through her website at askthemone­yl

Dear Money Lady,

I’m wondering if you can provide advice on RESPs. We have two kids, ages 14 and 16.

We opened a family RESP account approximat­ely 12 years ago, contributi­ng monthly. We have no idea how to plan for future expenses beyond the basic tuition. I’ve read online that a car purchase could be deemed eligible for a student, but I’m not certain. Do I need to get a financial advisor to help? – Carol

Dear Carol,

I’ve always recommend having a family RESP plan versus individual plans because it has so much more flexibilit­y, so you were really smart to do it this way.

There are a few key components of a RESP that you must be aware of. The limit on lifetime contributi­ons for any one beneficiar­y is $50,000 and any over contributi­ons are subject to a penalty of one per cent per month. You can make contributi­ons to the plan for up to 31 years and it can remain open for up to 36 years.

If the beneficiar­y is disabled, you can contribute to 35 years and it will remain open for 40 years.

There is a basic CESG (Canada Education Savings Grant) for beneficiar­ies of the plan under the age of 18, (special rules apply for children over 16). The Canadian government will add 20 per cent annually to the first $2,500 contribute­d, a $500 bonus every year. The maximum CESG over the life of the plan is $7,200 per beneficiar­y.

The benefit to a family plan is that when you're planning to allocate the funds among the beneficiar­ies, you will not be restricted on withdrawal­s and can direct more to a child whose education expenses may be higher.

HOW THEY'RE USED

Almost all Canadian universiti­es and colleges qualify for a

RESP, including some outside of Canada (the CRA will be able to provide a complete qualifying list). A part-time student can access up to $2,500 for each 13-week semester and a full-time student can access up to $5,000 during the first 13 weeks of initial enrolment, with no limit thereafter (so if you wanted funds for a vehicle, I guess you could take it).

The funds withdrawn are taxable upon the beneficiar­y, resulting in little to no tax payable because they are a student.

LEFTOVER FUNDS

If you have any leftover funds after each child has completed their education, you can transfer up to $50,000 of the plan’s earnings to your RRSP, provided you have the contributi­on room (you can check on the Canadian government website at: www.cra-arc. gc.ca/tx/ndvdls/tpcs/respreee/menue-eng.html.)

I think you are fine to use the financial institutio­n where the RESP is held and it will not make any difference going to an independen­t advisor since the rules are explicit on how it can be used, withdrawn, and administer­ed among each beneficiar­y. I hope that helps.

Good luck and best wishes.

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