A Registered Education Savings Plan (RESP) is an account for Canadian residents with children, grandchildren, or other qualifying beneficiaries to support and finance their post-secondary education.
The primary benefit of an RESP is the Canada Education Savings Grant, a program in which the Canadian Federal Government contributes 20% of the first $2,500 deposited into the account each year, to a maximum of $7,200. There are also provincial programs in place which can further add to the amount saved.
For families unable to contribute the money needed to benefit from the government grant programs, the Canada Learning Bond puts $500 into an RESP when it’s opened, as well as $100 per year afterwards for eligible families.
The RESP contribution limit is based on the beneficiary of the money in the account, rather than the account itself. A lifetime maximum of $50,000 can be contributed to RESPs for each beneficiary. This limit does not include payments to the RESP from the Canadian Education Savings Grant or designated provincial programs.
To qualify as a beneficiary, a person must be a resident of Canada and have an assigned social insurance number. While RESPs are most commonly opened for a person’s child or grandchild, direct ancestry is not required to qualify as a beneficiary. Nieces and nephews, as well as family friends can also qualify.
When the beneficiary begins post-secondary education at a qualified institution or program, they may receive payments of up to $5000 from the account for the first 13-week period of study, and any amount afterwards.
The funds contributed to the account by the account-holders are not taxed upon withdrawal, however the funds contributed by government grant programs are attributed to the beneficiary’s income. This usually results in little to no tax, however, as most new students fall below the income tax bracket.
The money in an RESP can be used to fund the beneficiary’s education until 35 years after the account was started. If an RESP is closed without funding a beneficiary’s education, all government grants are taken back, however all other contributions can be withdrawn by the account-holders tax-free at any time.
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