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Registered Education Savings Plan

Registered Education Saving Plan (’RESP’) Part 2

May 29, 2012

Back in Junior High, our basketball coach taught us the concept of a back door. It involves a player taking an indirect route, a ’back door’ to the low post and being in a position to receive a pass and hopefully have a clear shot at the basket. This basketball analogy can also be used to help explain the following concept about obtaining at least a 20% Canada Education Savings Grant (’CESG’) for children who are past the regular age of obtaining an RESP grant.

An important deadline is the year in which the child turns 15. A contribution of $2,000 must be made by the end of the year the child turns 15 or contributions of $100 must be made in any 4 preceding years in order for the child to receive grants on contributions made when the child is 16 or 17.

Many of us are busy with day-to-day challenges and financial concerns and may not have considered saving for post-secondary education, so we may miss the age 15 deadline. By using a ’back door’, parents may still be able to obtain grants using younger siblings RESP room to benefit older siblings who are or will be attending a post-secondary educational institution.

Here’s how it works. From 1998 to 2006 children have accumulated $400 in CESG room per year and from 2007, $500 in CESG room per year. RESP grant room is carried forward, however, the maximum grant available in any year is $1,000, requiring a $5,000 contribution. A Family Plan can be set up naming all children 21 years or younger. Parents can contribute up to $5,000 per child, per year to children who are 15 years of age or younger by the end of the current year to obtain the CESG (maximum: $1,000 per child). The funds can then be withdrawn for the older child with parental consent and confirmation that the child is enrolled in a recognized post secondary educational institution. Contributions are withdrawn tax-free and the grant and income earned is taxable to the child who receives the funds.

To help maximize the CESG available, children can help out by contributing money they have set aside for schooling, including student loans, to a Family RESP with parental consent.

 


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