Saving for Education Using the RESP - Small businessess from 1 to 80 employees outsource your payroll management to us and let us worry about your payroll processing.
RSS Follow Become a Fan

Delivered by FeedBurner

Recent Posts

Tax changes to expect when you’re expecting
2016 Tax Tips for 2015 Filing Year
From Proprietorship to Corporation - When is the Best Time to Incorporate?
Tax Specialists Brief your Clients About CRA Fraud And E-Mail Scams
Bank of Canada cuts rates again

Most Popular Posts

Help your teenager build credit responsibly
Being an Executor of an Estate
Student Line of Credit
Principal Residence Exemption


aliko nutrition store- isotonix
aliko payroll services
canada revenue news and videos
canadian news
Cross border Tax
Disability awareness and Benefits for disabled
estate planning
Home Car Insurance
Income Splitting Strategies in Retirement
kids and money -set your children up for financial success
life insurance
on line safety tips
online safety tips
Real Estate - Investments / Retirement
Retirement planning
Save your money
small business planning
Tax Information for Students
tax news
tax planning
Tech news


January 2016
July 2015
May 2015
April 2015
February 2015
December 2014
November 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013

powered by


Saving for Education Using the RESP

Saving for Education Using the RESP
Saving for Education Using the RESP
Written by Jim Yih
This time of year we are all looking for gift ideas. I’ve always said that an RESP may be one of the best gifts for children and grandchildren. I know it’s not as interesting or exciting as the latest toy or trendy outfit but given some of the latest statistics on post secondary education, it may be the most practical gift to give children. It will allow children to receive traditional or online masters degree programs at little to no cost to them once they are grown up.
What is an RESP?
A Registered Education Savings Plan (RESP), is a tax deferred education savings vehicle through which the federal government allows a subscriber to save money for a beneficiary’s post-secondary education. Money invested into the RESP is not tax deductible like the RRSP but the growth of the investments is tax deferred.
In 1998, the government made some very significant changes to the RESPs to make them much more attractive. In this article, we will discuss some of the more important basics of the RESP.
Understanding terminology
Before we go too far, we need to establish an understanding of some of the important terms with regards to the RESP.
·         A subscriber is the person who creates the plan and who makes contributions to the plan. This could be anyone. However, if the RESP is a family plan, the beneficiaries must be related by blood or adoption to the subscriber. For this purpose, blood relationships include children, brothers, sisters, grandchildren and great-grandchildren. The subscriber is responsible for tracking the total amount contributed to all RESPs on behalf of the beneficiary.
·         A beneficiary is the person who will draw upon the RESP to finance their education.
·         An individual plan is an RESP set up by a subscriber for one beneficiary. A subscriber may designate anyone as the beneficiary of the plan, including themselves, a spouse or common-law partner.
·         A family plan is an RESP set up by a subscriber on behalf of one or more beneficiaries. However, each beneficiary must be under 21 years of age at the time of designation and must be related to the subscriber by blood or adoption. Children, grandchildren, brothers and sisters are considered blood relations, while nieces and nephews are not.
The most significant change made to RESPs is that the government has created the Canada Education Savings Grant (CESG) to promote education savings and give a boost to RESPs. The government will contribute 20 per cent of the annual contributions made to an RESP, up to a maximum of $500 per calendar year per beneficiary.
The CESG and the accumulated earnings, when paid out to the beneficiary for educational purposes, are taxed as income in the hands of the student. The return of contributions to the subscriber is not taxable because contributions to an RESP are made with after-tax money.
Money invested into an RESP must be used for the purpose of education. The money can be used to cover the student’s tuition, housing, transportation, books, supplies and other incidentals relating to the student’s education.
What happens if the child does not go to school?
This is the most common question that is asked about RESPs. Before the changes in 1998, the RESP was very restrictive in terms of options if the child did not go to school. Today, the RESP rules provide more options in case the child does not go to school. No matter what happens, the subscriber is able to withdraw the original contributions without any tax implications.
·         Option 1 – Change the beneficiary. The replacement beneficiary must be connected to the subscriber by blood or adoption. The CESGs paid into the family plan can be used by the replacement beneficiary or any of the other beneficiaries as long as the they are under the age of 21.
·         Option 2 – Transfer earned income to the RRSP. The subscriber may transfer up to $50,000 of the earned income to the RRSP or that of your spouse or common-law partner, provided unused RRSP contribution room is available.
·         Option 3 – Pay the tax and penalty. Any accumulated income you receive that is not transferred to an RRSP will be fully taxed in your hands at your top marginal tax rate. In addition, you will pay a penalty of 20 per cent of the withdrawn accumulated income. For example, if the subscriber is in a 40% tax bracket, the accumulated income would be taxed at 60%.
·         Option 4 – leave the money for a while. You may wish to leave money in the plan for a few years in case the beneficiary changes his or her mind.

3 Comments to Saving for Education Using the RESP :

Comments RSS
Best MBA admissions consultants in Bangalore on November-21-13 7:21 AM
Top admissions consultants for ISB and other US top B Schools. Very good success rate
Reply to comment

Digital Agency Vancouver on December-16-13 6:09 AM
I’m actually leveraged with your part, such large minutia and numbers you cited here, thanks for your circulating and waiting to glimpse your future mails
Reply to comment

karriere navigator on January-03-14 5:20 AM
Thanks for sharing this great article! That is very interesting I love reading and I am always searching for informative information like this.
Reply to comment

Add a Comment

Your Name:
Email Address: (Required)
Make your text bigger, bold, italic and more with HTML tags. We'll show you how.
Post Comment