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Welcome to our comprehensive guide on Registered Education Savings Plans (RESPs). This guide provides you with everything you need to know about RESPs, from the basics to advanced details, ensuring you have all the information necessary to make informed decisions about your child’s educational future.

What is an RESP?

In Scarborough, a Registered Education Savings Plan (RESP) provides parents and guardians with a tax-advantaged savings account to help them save for their child’s post-secondary education in Canada. Contributions to an RESP grow tax-free until withdrawn, and the government provides additional incentives through grants and bonds to encourage savings.

Key Features of an RESP

1. Tax Advantages: Contributions to an RESP in Scarborough are not tax-deductible, but the investment income earned within the plan grows tax-free. When students withdraw funds for educational purposes, they are taxed on the income and government grants, often resulting in minimal tax because they typically have little or no income.
2. Government Grants: Canada Education Savings Grant (CESG): The government matches 20% of annual contributions, up to $500 per year per beneficiary, with a lifetime maximum of $7,200.
3. Canada Learning Bond (CLB): Available to low-income families, providing up to $2,000 per child, without requiring any personal contributions.
4. Flexibility: You can use RESPs to fund a variety of post-secondary education options, including university, college, trade schools, and certain programs outside Canada.

Types of RESPs

1. Individual RESP: Set up for a single beneficiary. Parents, grandparents, friends, or other family members can make contributions.
2. Family RESP: Allows multiple beneficiaries, provided they are related by blood or adoption. This type is ideal for families with more than one child.
3. Group RESP: Pooled together with contributions from multiple subscribers, managed by scholarship plan dealers. Typically, these plans have more restrictive rules.

How to Open an RESP

1. Choose a Provider: You can open RESPs at banks, credit unions, mutual fund companies, or scholarship plan dealers. Compare the options to find the best fit for your needs.
2. Gather Documents: You’ll need the Social Insurance Number (SIN) of the child (beneficiary) and the subscriber (usually a parent or guardian).
3. Complete the Application: Fill out the necessary paperwork with your chosen provider and decide on your initial contribution.
4. Apply for Grants: Your RESP provider will help you apply for the CESG and, if applicable, the CLB.

Making Contributions

You can contribute any amount to an Registered Education Savings Plan (RESP) in Scarborough up to a lifetime maximum of $50,000 per beneficiary. There are no annual contribution limits, but maximizing the CESG requires annual contributions of $2,500 to receive the full $500 grant each year.

Investment Options

RESP funds can be invested in a variety of financial products, including:
 Savings accounts
 Guaranteed Investment Certificates (GICs)
 Mutual funds
 Exchange-traded funds (ETFs)
 Stocks and bonds
Choose an investment strategy based on your risk tolerance and the time horizon until the funds are needed.

Withdrawals

Withdrawals from an RESP are categorized into two types:

1. Educational Assistance Payments (EAPs): These include the investment income and government grants. EAPs are taxable in the student’s hands.
2. Post-Secondary Education (PSE) Withdrawals: These are the contributions made to the RESP. PSE withdrawals are not taxable as they were made with after-tax dollars.
   To make a withdrawal, you’ll need proof of enrollment from a qualifying post-secondary institution.

RESP Maturity and Closure

An RESP can stay open for up to 36 years (or 40 years for beneficiaries with disabilities). If the beneficiary does not pursue post-secondary education, there are several options:
 Transfer to another beneficiary: Possible within family plans.
 Transfer to a Registered Retirement Savings Plan (RRSP): The subscriber can transfer up to $50,000 to their RRSP if there is contribution room.
 Withdraw funds: You can withdraw contributions tax-free, but the system will tax investment income and apply an additional 20% penalty unless you transfer the funds to an RRSP.

Advantages of RESPs

1. Government Grants and Bonds: Significant boost to savings through CESG and CLB.
2. Tax-Deferred Growth: Investments grow tax-free until withdrawn.
3. Flexibility in Use: You can use funds for various educational expenses.
4. Low Contribution Requirements: No minimum annual contributions required.

Disadvantages of RESPs

1. Complex Rules: Understanding eligibility and withdrawal rules can be challenging.
2. Penalties on Non-Educational Use: Withdrawals not used for education may incur taxes and penalties.
3. Contribution Limits: Lifetime contribution limit of $50,000 per beneficiary.

Tips for Maximizing Your RESP

1. Start Early: Begin contributing as soon as possible to take advantage of compound growth.
2. Maximize Grants: Aim to contribute at least $2,500 annually to receive the full CESG.
3. Review Investments Regularly: Adjust your investment strategy as your child gets closer to postsecondary education.
4. Stay Informed: Keep up-to-date with any changes in government policies regarding RESPs in Scarborough.