Post secondary education is very expensive in North America and
unless you are fairly wealthy will be a worry for most parents.
Obviously, not all kids go onto University or College but if
they do and you haven't planned for it you could find yourself
with a large financial burden. This would probably happen just
when most families are looking at finally having some financial
security
A Registered Education Savings Plan - RESP - is vital for your
financial health if you have kids who you feel may want to go
into post secondary education. An RESP is government sponsored
(Registered with Canada Customs and Revenue Agency) and is
allowed to grow tax free. Money paid from the plan at maturity
may be taxed as income for the student.
The plans are administered by private companies/persons
(Promoter) who will collect contributions and invest them
accordingly. Up to $4,000 per beneficiary (student) can be
contributed per calendar year, with a lifetime limit of $42,000
without any tax implications. Each student may have more than
one plan but the limit is strictly per student.
The most important aspect of the RESP's is that the Government
will add 20% to the first $2,000 per calendar year ($400) up to
and including the year of the students 17th birthday. This is
called the Canada Education Savings Grant (CESG) and any amounts
paid in are not included in the annual limit for tax purposes.
The maximum a student can receive from CESG is $7200 over the
lifetime of the plan. Any amount of CESG not claimed each year
will accumulate as up to $800 can be paid if not previously
claimed. If the RESP is not eventually used for educational
purposes any CESG payments will have to be repaid to the
government. To apply, the student must be resident in Canada and
have a Social Insurance Number (SIN) which must be provided to
the promoter at the plan inception. Also, the individual making
the contributions will be required to provide their SIN.
Types of RESP Plans
There are 3 main types of Plan:
Non-Family - There can be only one beneficiary but anyone
(grandparents/godparents etc.) can make the contributions
whenever they want for however much they want to pay. Family -
There can be one or more beneficiary's as long as they are blood
relatives or adopted by the person/s making the contributions.
There are no restrictions on when and how much is paid in (apart
from the tax implications of over subscribing). Group - These
plans are normally offered by foundations who set how much is
paid in and when. Each age group will have a particular plan and
all members will take a share. There are some fairly complicated
rules attached and should be thoroughly researched with the plan
providers before committing.
RESP Termination
At termination/maturity, there are several options:
1. The intended student does not go into post secondary
education. The contributions are returned tax free to the person
who made them. The CESG is repaid to the government. Any income
generated by the plan will be subject to taxation.
2. The student enrolls in a qualified program at a post
secondary educational institution and completes the full
program. Initially, $5000 can be paid from the plan, then after
13 weeks there is no limit to the amount paid as long as the
student remains in the program. These payments are called
Educational Assistance Payments (EAP's). The student cannot be
receiving EI (employment Insurance) or the program must not be
part of the students employment (an apprenticeship for example).
3. The proceeds can be transferred to another RESP. 4. The
proceeds can be paid to a designated educational institution.
More, detailed information can be found at http://ww
w.onestopimmigration-canada.com/RESP.html
About the author:
The author immigrated to Canada in 2003 and has constructed a
free information website
http://www.onestopimmigration-canada.com about Canadian
Immigration and life in Canada based on his family's experiences
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