More Great Reasons to Use the RESP
Written by Jim Yih •
The Registered Education Savings Grant is probably one of the best ways for parents and grand parents to save money for their kid’s education. One of the biggest incentives to putting money into an RESP is the Canada Education Savings Grant where the government will put in an additional 20% for every dollar contributed to an RESP up to a maximum of $2000 contributed per child. Effectively, a parent who puts in $2000 into an RESP would get an additional $400 put into the RESP by the government. That’s like an instant 20% return.
At one time, the RESP plan was very restrictive if the child did not go to school. Today, the plans are more flexible giving a number of options:
1. If the child does not go to post secondary school, the money can be transferred to a sibling.
2. Otherwise, the government gets their 20% back, the subscribers get their contribution back and the rest can either be rolled into the subscribers RRSP or it will be taxed.
3. There is also a provision that allows the subscriber to move funds from the RESP to their RRSP if they have enough RRSP contribution room
Overall, the RESP has become more popular because of the flexibility that has been built into the rules and the ability to access grant money from the government.
Four new reasons to put money into RESPs
Since the release of the new RESP rules in 1998, there are some new programs that may benefit some parents.
1. Canada Learning Bond. The Canada Learning Bond is for families that qualify for the National Child Benefit Supplement. Generally, this plan is for low to middle income families. If you qualify, your child born after Jan 1, 2004, will receive a $500 bond to go towards the child’s RESP. The government will add $100 per year for the next 15 years. For more detailed information, visitwww.hrsdc.gc.ca.
2. Additional CESG. Originally, the Canada Education Savings Grant was 20% for every dollar contributed to an RESP per child. Now the CESG is based on net family income. If your net family income was below $36,368, your CESG is now worth 40%. If your net family income was above $36,368 but below $72,756 then you qualify for 30%. For those with a family income greater than $72,756, you still qualify for the basic 20% CESG. For more detailed information, visitwww.hrsdc.gc.ca.
3. Alberta Centennial Education Savings Grant. For those of us living in Alberta, any child born to an Alberta Resident in 2005 and beyond qualify for the $500 Alberta Grant. The money must go into a RESP and an application must be made through the RESP carrier. The plan also provides another $100 at the age of 8, 11, and 14 under a matching provision. This grant is not income tested. For more detailed information, visit www.advancededucation.gov.ab.ca/aces/
4. Universal Child Care Plan. In the 2006 budget, the government introduced the Universal Child Care plan which will provide families $100 per month for every child under the age of 6. Although the money can be used for anything under this plan, parents can also use the money to contribute to an RESP to further maximize the return of the money. For more detailed information, visit www.universalchildcare.ca
At the root of all these plans, it is very important for parents to make sure they have their children registered with the government (both provincial and federal).
With tuition fees rising much faster than inflation and wages, it is becoming more and more important for families to plan earlier for children’s education. Often, grandparents are getting involved in helping to plan and partially fund for their grandchildren’s future education opportunities. There are now four more opportunities for families of all income levels to help kick start the education planning process.