Registered educations savings plans (RESPs) are one of the most popular savings plans among Canadians. Not a week goes without members asking me at least one question about this type of plan that offers a host of advantages to families while helping them save for their kids' post-secondary education.
Here are answers to the 11 most frequently asked questions:
1. Is there a minimum amount to invest in an RESP?
No, there's no minimum initial contribution required to open or maintain an individual (one beneficiary) or family (two or more beneficiaries) plan. However, there are a number of investments options when you open an RESP, some of which may require minimum deposits.
2. Do I need to make regular contributions? What happens if I want to skip a contribution? Can I change the amount of my contributions?
You decide how much and how often you contribute. For both individual and family RESP plans, you can adjust the contributions at your own discretion as long as you respect the lifetime contribution limit of $50,000 per beneficiary.
3. What are my investment options?
There are a few investments options available. An advisor can help set up your investor profile and choose the investment that fits your reality, investment horizon and risk tolerance.
4. How can I keep track of my investment?
You'll receive quarterly and annual statements, but you can always keep a closer eye on how much you're saving online, at your convenience.
5. How do I apply for education grants?
RESP promoters sign an agreement with the government so they can request the grant for you. The Canada Education Savings Grant (CESG) is based on your contributions and is deposited monthly into the account. Quebec residents are also eligible for the Quebec education savings incentive (QESI), which is deposited yearly.
6. Can I make withdrawals from my RESP? Are there any withdrawal fees or penalties?
Subscribers can withdraw the capital of an RESP at any time, before or when their plan comes to term. However, you may have to repay the CESG or QESI grants if the withdrawal isn't considered an educational assistance payment (EAP) for post-secondary studies. The grants cannot be recovered.
7. Once the government grants stop, can the subscribers continue to make contributions to the RESP?
Beneficiaries under 18 years old are eligible for the government grants. But subscribers can contribute to the plan until the 31st year after the plan was established. For example, you can contribute to a plan established in 2016 until the end of 2047.
8. Are there any types of educational institutions that aren't eligible for RESPs?
To qualify, students must attend:
- A college, university or other educational institution in Canada that offers either post-secondary courses or courses eligible for student financial assistance (grant and scholarship programs);
- An educational institution recognized by Employment and Social Development Canada offering courses that teach or improve the skills necessary to perform a professional activity;
- A college or other institution outside Canada that offers post-secondary courses, and at which the beneficiary is enrolled in a program that lasts at least 13 consecutive weeks.
Yes, but only if they're enrolled in:
- A qualifying educational program that lasts at least 3 consecutive weeks and requires students to spend no less than 10 hours per week on courses or school work;
- A specified educational program that lasts at least 3 consecutive weeks and requires the student, who must be at least 16 years old, to spend no less than 12 hours per month on courses or school work.
10. What happens to my RESP contributions if my child decides not to pursue post-secondary studies?
If you're enrolled in an individual plan, you can choose another beneficiary. Siblings can keep the grants if the rules are followed. If you can't transfer the plan to someone else, the grants will be returned to the government and your contributions will be returned to you.
As the subscriber, you're also entitled to the accumulated investment income, but it'll be taxed at your marginal tax rate plus an additional 20% tax penalty. You can avoid both these tax rates by contributing the accumulated income to your RRSP.
11. Will my child be taxed on the amounts withdrawn from the RESP?
EAPs, which include grants and accumulated income, are considered as part of your child's taxable income. The contribution payments, however, are not taxable.
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