Investing in a Child's Future

Post-secondary education in Canada isn’t cheap. But just how expensive is it? Try an estimated average of $7,590 a year for university tuition by 2018-2019 -- and of course, specialized programs like medicine and law cost about twice that much.
    
If those numbers scare you, you’re not alone. Fortunately, there’s help. A Registered Education Savings Plan (RESP) is a great way to pay for your child’s education because for every contribution you make, the government may also make a contribution depending on your child’s age and your net family income.

How it works

An RESP is a tax-deferred investment plan that helps you save for a child's post secondary education. You can make contributions up to a maximum of $50,000 per child until the child turns 31. If your child is 17 or younger your contributions to an RESP may be supplemented by the federal government's Canada Education Savings Grant (CESG). The amount of money that each child can receive in additional grant money depends on the net family income of the child’s primary caregiver. 

Visit www.canlearn.ca for the most recent income brackets. The maximum amount of grant per child is $7,200. Your child can use the money for full-time or part-time studies in an apprenticeship program, CEGEP, trade school, college or university.

Types of RESPs

With a family plan, you (the subscriber) can name more than one child as a beneficiary of the plan. Each beneficiary must be your child, grandchild, great-grandchild or sibling, by birth or adoption. Individual plans allow for only one child to be named as beneficiary. He or she does not have to be related to you.

Of course, there’s always the possibility that your child may not pursue post-secondary education—in which case you can use the earnings to pay for the education of another child if you have a family plan. If you have an individual plan, you can also name another beneficiary, however the total CESG may have to be returned to the federal government.

Tax Implications

• Unlike a Registered Retirement Savings Plan (RRSP), your contributions to an RESP are not tax-deductible, but the investment income earned is tax-sheltered until withdrawn.
• If no beneficiary chooses to pursue higher education, you may be able to transfer up to $50,000 tax-free from the RESP to your RRSP. If you do not have sufficient RRSP contribution room, you may be able to withdraw plan earnings, however, some restrictions and additional taxes may apply.

Click on the RESP Brochure in the right column to learn more.