An RESP is a tax deferral plan intended to encourage saving for post-secondary education. RESP contributions are not tax deductible. However, income generated by the contributions is tax sheltered.
Canada Revenue Agency (CRA) regulations state that RESP contributions belong to the subscriber. Contributions to an RESP account from an In Trust For account is a breach of trusts and is therefore not permitted. Canada Savings Bonds must be registered in the name of subscriber to complete the contribution.
The following restrictions apply:
With all plans, maximum lifetime contribution is $50,000 per beneficiary.
The maximum annual contribution per beneficiary which is eligible for the 20% Canada Education Savings Grant (CESG) is $2,500.
Multiple beneficiaries are allowed (family plan only).
Joint subscribers are allowed only if the joint subscriber is a spouse.
Contribution cut-off date is December 31 for regular contributions, but unused contribution room is carried forward.
The same investments allowed for RRSPs are allowed for RESPs.
Excess contributions to an RESP are subject to a 1% penalty per month.
During the initial 13 consecutive weeks of education, the RESP EAP maximum withdrawal for a full-time program is $5,000; for a part-time program, it is $2500.
Beneficiaries age 18 or older, are not eligible for CESG.
Beneficiaries at age 16 and 17 must meet at least one of the following conditions to be eligible for a CESG:
A minimum contribution of $2,000 must be made and not withdrawn from the RESP on behalf of the beneficiary before the calendar year in which the beneficiary turns 16.
A minimum of $100 in annual contributions must be made to and not withdrawn from the RESP on behalf of the beneficiary in any 4 years before the year in which the beneficiary turns 16.
Wealth Administrator Program (WAP) and the Pre-Authorized Cheque Program (PAC) cannot be set up for RESP accounts.
What if your child was eight years old before you decided to open an RESP? How much of the grant will he or she be entitled to? The CESG has been accumulating since your child was born whether or not he or she has an RESP. Therefore, your child will currently have the cumulative grant room from the previous eight years. If you open an RESP today and contribute $5,000 each year for seven years, the plan will receive grants totalling $7,000. If the RESP earns an eight per cent return, there will be over $57,000 in the plan. As you can see, it's never too late to start an education savings program and take advantage of the Canada Education Savings Grant. For more information, please refer to the RESP Concept Sheet or contact Jan Canning.
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