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What is a RESP?

A Registered Education Savings Plan, or RESP, is a savings plan for children's post-secondary Canadian education. The advantages of RESPs are the access to the Canada Education Savings Grant (CESG) and a source of tax-deferred income.

Do RESPs offer tax deferral?

Interest income and growth earned within the RESP are not taxed as long as the funds remain in the plan. Withdrawals from an RESP are taxed in the hands of the student, which usually means that taxes will be low.

How much can be contributed to an RESP?

For the maximum annual RESP grant of $500, you contribute $2,500 per year or $208.33 per month to the plan. Obviously not all parents can contribute this much.

How to enrol in an RESP?

You need to have your social insurance number, your child's social insurance number and birth certificate to open an RESP.

When your child enrols in post-secondary education, he or she can start taking the payments, called educational assistance payments (EAPs) from their RESP. EAPs are include the investment earnings and government grant money in the RESP.

Average and lower-income families can receive more CESG sooner—30% to 40% on the first $500 contributed each year. Grants on annual contributions between $500 and $2,500 are matched at the rate of 20% as described above. Combined Canada Education Savings Grant (CESG) and additional amount of Canada Education Savings Grant (ACESG) lifetime grant maximum of $7,200 per child.

What is the maximum lifetime contribution allowed for an RESP?

The lifetime CESG limit is $7200 and the RESP also has a lifetime limit of $50,000. Of this $36,000 would qualify for the 20% CESG grant before maximizing the $7200 limit.

Can RESP contribution room be carried over?

The CESG provides a matching contribution of 20% on the first $2,500 contributed annually, and unused entitlement can be carried to the next year. Accordingly, the maximum CESG in any one year is the lesser of $1000 or 20% of the contribution.

Can money be withdrawn early from an RESP?

You can withdraw all your RESP contributions without taxation or penalties. Any remainder is taxed at your marginal tax rate plus 20%. This withdrawal is called the Accumulated Income Payment (AIP).

Can a child use an RESP for living expenses?

If your child needs transportation RESP money can be used to pay for it, as with other expenses like rent, meals, living expenses, a computer, a desk and student fees.

What does a family RESP include?

You can set up an RESP as an individual plan or a family plan. An individual plan is for a single beneficiary, while the family plan is for a number of children.

Can a child have more than one RESP?

A child can have more than one RESP account. There is a lifetime limit of $50,000 that can be contributed for each child.

Can I make up missed RESP payments?

If you missed contributing to a RESP, it may not be too late to catch up on past contributions and get every dollar of the CES grant. Ask your broker to check.

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