An RESP is a tax-sheltered way to save for a child’s education.  RESPs are Education Savings Plans registered under Canada’s Income Tax Act, which were created for the purpose of providing tax-sheltered financial assistance to a Beneficiary (your child) when he or she pursues a post-secondary education. Investment income on savings within an RESP grows tax free until your child is ready for a post-secondary education, at which point the earnings in the RESP are taxed in the hands of the student, who typically pays little to no tax. There are also options if your child decides not to pursue post-secondary education. In addition, your RESP may qualify for various government incentives that help you save for your child’s post-secondary education.

The Canada Revenue Agency (CRA) allows parents to contribute up to a lifetime of $50,000 on behalf of a child. Friends and relatives may also start a plan for children, and all their contributions are included in the lifetime limit. It has been estimated that by the year 2027, it could cost over $129,000* to send a child to four years of post-secondary education. This amount seems very high, especially when, as a new parent, you are more concerned with how the baby is eating and not thinking about what will happen 18 years from now. As with any investment, the sooner it is started, the longer it has to provide you with more funds. The best time to begin saving for your child’s education is when they are very young in order to maximize your investment.

Increase your RESP with free money from the Government

  • Canada Education Savings Grant (CESG)**
    • Grant equals 20% of the first $2,500 of your annual contributions
    • Annual maximum of $500 to $600 per eligible child to age 17, depending on family income
    • Lifetime amount is $7,200
  • Canada Learning Bond (CLB)
    • For families with children born in 2004 or later whose parent or guardian is eligible for the National Child Benefit (NCB) Supplement
    • One-time initial contribution of $500 to an eligible child’s RESP
    • An additional $100 for each year of eligibility until age 15
    • Up to $2,000 in total
  • Alberta Centennial Education Savings Grant (ACES)
    • For any child born to or adopted by residents of Alberta in 2005 or later
    • One-time initial contribution of $500 to an eligible child’s RESP
    • Subsequent grants of $100 per eligible child’s RESP for children attending school in Alberta at ages 8, 11 and 14
    • Up to $800 in total
  • Quebec Education Savings Incentive (QESI)
    • QESI is made up of a basic and an increased credit
    • QESI equals 10% of the first $2,500 of net annual contributions
    • Annual maximum of $250 to $300 per eligible child to age 17, depending on family income
    • Lifetime total of $3,600 per child
    • Child must be a resident of Quebec

A brief history of Registered Education Savings Plans in Canada

  • The RESP was introduced January 1, 1972, allowing contributions to grow tax-free until the children go to college or university.
  • In 1998, the Government of Canada launched the Canada Education Savings Grant (CESG), which gives a 20% rebate (up to $400 a year) on the first $2,000 contributed to an RESP.
  • In 2004, the CESG was enhanced for low-income families – a return of 30% to 40% on the first $500 contributed to an RESP.
  • The Canada Learning Bond, also introduced in 2004, of $500 for babies born into low-income families – additional payments of $100 a year for 15 years.
  • In 2005, the Alberta Centennial Education Savings Grant (ACES) was introduced for Alberta residents – up to $800 in total.
  • In 2007, the Quebec Education Savings Incentive (QESI) was introduced for Quebec residents – a lifetime total of $3,600 per child.

With the introduction of the CESG, RESPs exploded in popularity. Parents can get up to $7,200 in free money if they contribute at least $2,000 for 17 years. Nowhere else can you get a 20% return on your money! If you sign-up for an RESP with Knowledge First Financial, they will make sure you are enrolled in all of the government grants you are entitled to receive. So why wait? The sooner you start saving in an RESP, the more your investment can grow for your child’s future.

This information provided courtesy of Knowledge First Financial www.knowledgefirstfinancial.ca

* Based on figures from Statistics Canada.
** Certain conditions apply.