A registered education savings plan (RESP) is an investment vehicle designed specifically for saving for a child’s education. Whether it’s your own child, a grandchild or another child in your life, the RESP savings can be used to pay for their education at a post-secondary institution. Here’s everything you need to know about RESPs:
- The beneficiary must be a Canadian resident who has a social insurance number at the time the account is opened. The money invested in the account can later be used to pay for post-secondary education in Canada or abroad.
- You can open more than one RESP for the same beneficiary, but it won’t mean they’re entitled to more government grants. The limit applies to all the beneficiary’s RESPs combined.
- The investment capital remains the property of the person who deposits it into the RESP (called the “subscriber”), whether the child decides to go to school or not.
- With a Desjardins RESP, there are no restrictions on how often or how much you can contribute. (But if you invest the account in mutual funds, there’s a $25 minimum contribution amount.)
- Government grants are paid into the RESP until the beneficiary turns 18. At the federal level, the Canada Education Savings Grant provides at least 20% of your annual contributions, up to a lifetime maximum of $7,200. Provincial grants may also apply; for example, the Quebec Education Savings Incentive matches another 10% of your annual contributions, up to a lifetime maximum of $3,600. If you contribute $2,500 in a year, you’ll max out all the grants the account is entitled to.
- There’s a lifetime maximum of $50,000 in RESP contributions per child.
- You can still receive grants you may have missed in previous years, one year at a time, up to age 17. For example, if you contribute $5,000 in a given year, you could receive grants for both the current and previous years.
- Government grants are added to the income generated by the investment, all of which remains tax-sheltered for as long as it stays in the RESP.
- When it’s time to withdraw, the investment capital—which still belongs to the subscriber—isn’t subject to tax. The educational assistance payments—which are made up of the grants and the investment income—are taxable for the recipient. But since that’s the student, who probably won’t have a very high income, they’ll pay little or no tax.
Visit This link will open in a new tab. www.desjardins.com/RESPcalculator to see how an RESP could benefit your family, or talk to a Desjardins representative about it.