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RESP

Objective

The objective of this plan is to accumulate money in a tax shelter for the beneficiary’s post secondary studies. This is usually for a child.

Contribution Ceiling

The federal government has put into place a cumulative lifetime maximum amount of $50,000 per beneficiary. These maximums have been put into place to help make the most of the RESP’s tax advantages. The contribution ceiling is “per beneficiary” for all RESP contracts in that name.

The Canada Education Savings Grant (CESG)

The Canada Education Savings Grant (CESG) was created by the federal government in 1998 to help encourage parents to invest in their children’s post secondary education. The CESG is equivalent to 20% of the first $2,500 in contributions that are made per beneficiary of 17 years of age or younger. It is calculated and paid into the plan on a monthly basis. There is a ceiling of $7,200 per each beneficiary.

The plan promoter is who will apply for the CESG on the subscriber’s behalf. There are some requirements set in place in order to be considered eligible. These requirements include the beneficiary having a social insurance number and must be a Canadian resident. There are certain restrictions that apply to beneficiaries who are age 16 and age 17.

The federal government increased the CESG amount for the low-income families on 1/1/2005. The grants can now be for as much as 40% of the first $500 in contributions. If the child was born on or after 1/1/2004, he or she may also be eligible for a Canada Learning Bond. The maximum amount of this benefit is $2,000 over a time period of 15 years.

Investment Options

The subscriber has access to different types of investment tools that are traditionally only allowed in registered plans only. These plans were usually segregated funds and guaranteed incomes. The subscriber can select which investment to use depending on his or her needs. All company investment options will have a guaranteed minimum value at maturity and death that can reach or even exceed the amounts invested.

Beneficiary Eligibility Criteria

Individual Plans

Anyone with a Social Insurance Number (SIN) can be the beneficiary of an individual plan. However, there can only be one beneficiary per plan.
Family Plans
The beneficiary must be related to the subscriber by blood or adoption and have a SIN. There can be one or more beneficiaries per plan.

Change of Beneficiary

Individual Plans/Family Plans

As long as the person has a social insurance number he or she can be a beneficiary of an individual plan. It is important to mention that there is only one beneficiary per plan. In a family plan the beneficiary needs to be related to the subscriber by blood or adoption and will also need to have a SIN. A family plan can have more than one beneficiary.

Also within an individual plan it is possible that the subscriber can change the designated beneficiary at anytime. The new beneficiary can be older or younger than the previous one.

Any new beneficiaries on a family plan must be related to the subscriber by blood or adoption and needs to be under the age of 21.

Withdrawals from an RESP

An RESP will reach its maximum maturity age 35 years after it has been established.

Educational Assistance Payments (EAPs)

When speaking of Educational Assistance Payments what is being referred to are any payments other than contribution reimbursements that are paid to a beneficiary who is enrolled in a post-secondary program that meets the eligibility requirements. The subscriber can decide the amount and frequency of the EAPs as soon as the beneficiary begins his or her post secondary studies.

Educational payment assistance should only be used for education related expenses such as tuition, lodging, school supplies, food, transportation, etc. EAPs can be spread over a length of several years of study and are included in the student’s total annual income. $5,000 is the total maximum amount that can be paid in EAPs during the first 13 weeks of consecutive enrollment.

Accumulated Income Payments (AIPs)

Accumulated Income Payments is not an educational assistance payment or a contribution refund. AIPs correspond to the distribution of investment income earned on RESP contributions and the CESG. It is possible that AIPs cannot be transferred to an RRSP. When this happens they must be included in the amount of the subscriber’s current income and will also be subject to 20% additional taxes. A subscriber can withdraw their contributions at any time without the worry of an impact on their taxes. However if there are withdrawals that are made before the beneficiary start his or her studies the amount of the CESG attributable to the withdrawal must be reimbursed. These withdrawals could also result in restrictions being placed on any future CESGs.

Designating a New Beneficiary

If the designated beneficiary chooses to not obtain post-secondary institution the subscriber of the CESG can name another person as the beneficiary or be obligated to refund the CESG. If the plan is a family plan, EAPs can be made to one or all of the designated beneficiaries up to a maximum of $7,200 per beneficiary. A transfer of accumulated earnings into your RRSP if none of the beneficiaries selects to have post secondary studies are considered admissible under the plan and if the youngest of the beneficiaries is over the age of 21 and the plan has been in existence for 10 years, it is possible to transfer the earnings generated by the RESP to the RRSP of either the subscriber or his or her spouse. This applies to a maximum dollar amount of $50,000. Certain conditions as well as fees may apply and will vary depending on the type of education savings plan that is chosen.

Advantages of Each Type of plan

If you are considering an individual plan you will find that they offer great flexibility when looking at beneficiary designation. When it comes to family plans they have the advantage of offering greater flexibility in terms of the distribution of EAPs. Payments can be made to only one beneficiary or divided equally among several beneficiaries that are designated in the plan.

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