The Registered Education Savings Plan (RESP) is a popular option among Canadian parents who want to save money to pay for their children’s post-secondary education. Check out the following questions and answers to understand how the RESP works and how you can maximize it to fund your child’s future education.
What Is the RESP?
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RESP is a government-supported savings vehicle that makes it easier for you to provide your child with financial support for obtaining higher education. It allows you to build up your college savings in a tax-free manner and gain access to government grants.
Who Is Eligible to Participate in the RESP?
You need to be a Canadian resident with a valid Social Insurance Number to sign up for the RESP. You can be the parent, grandparent, relative, or even a friend of the beneficiary of your account.
How Much Can You Contribute to Your RESP Account?
The lifetime limit on RESP contributions is $50,000 per beneficiary. You’re allowed to contribute as much as you want every year provided the amount doesn’t exceed the lifetime limit. Any contribution you make after reaching the $50,000 limit will be subject to a 1% tax penalty every month until you withdraw the over-contribution.
What Are the Government Grants Available to RESP Subscribers?
When you make contributions to your RESP account, you can apply for the Canada Education Savings Grant (CESG). After you apply for the grants, you’ll receive a government matching grant amounting to 20% of the first $2,500 you contribute to an RESP every year, up to $500 per year and to a lifetime maximum of $7,200 per child. If you’re from a low-income family, you may be eligible for the Canada Learning Bond (CLB), which enables your child to receive government contributions until they’re 15 years old. You may also qualify for provincial grants such as the Quebec Education Savings Incentive (QESI) and British Columbia Training and Education Savings Grant (BCTESG), depending on where you live.
What Are the Limits on the Government Grants?
The lifetime grant limit for the CESG program is $7,200, which you can reach by contributing a total of $36,000. The maximum amount of grant you can receive in a year is $500. CLB has a lifetime limit of $2,000, while QESI and BCTESG offer maximum contributions of $3,600 and $1,200 respectively.
When Can a Subscriber Withdraw Money?
After your child has enrolled in a post-secondary education or training program, you can apply for the RESP withdrawal, which becomes available to you as Education Assistance Payments (EAPs). EAPs are a mix of government grants and earnings that can be used for any school-related expenses. However, you can make a withdrawal anytime, in which case you may have to pay back the grant or lose your grant eligibility.
What Can You Do to Maximize Your RESP?
To maximize your RESP savings, you have to contribute $2,500 each year. By doing so, you’ll receive the maximum annual grant of $500. Besides CESG, you could be eligible for other grants available to RESP subscribers, such as CLB and provincial grants. Make sure to check this with your RESP provider. Also, you should go for the maximum lifetime limit of $50,000 to take full advantage of the tax benefits.
It’s essential that you start contributing to your RESP as early as possible because you may have difficulty catching up on missed government grants when your child becomes older. Then, try to make monthly deposits to your plan to grow your funds consistently . You can also ask your family members, relatives, and friends to make contributions to your child’s RESP as gifts on birthdays or other special occasions.
The RESP has a variety of features that you can use to save money for your child’s education more quickly. If you want to get the most out of your RESP, consider working with a good RESP service provider to devise the best strategy to boost your savings.