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Registered Education Savings Plan

Registered Education Savings Plan (’RESP’) Part 1

April 30, 2015

 In 1998 the federal government, in response to increasing post secondary tuition costs, beefed up Registered Education Savings Plans (’RESP’) by adding a 20% Grant to contributions made to RESPs within certain limits. The Canadian Education Savings Grant (’CESG’) program may as well use the slogan "All you need is a Social Insurance Number for free money." That’s because opening a Registered Education Savings Plan and applying for a grant requires only a Social Insurance Number. Eligible contributions will receive at least a 20% grant from the federal government.

An automatic 20% return, that’s difficult to beat! It’s easy and attractive but there are some complexities. The maximum CESG room available for each child per year is $500 (requiring a $2,500 contribution). CESG room is carried forward so if a partial contribution or no contribution is made in the current year, the CESG can be obtained in future years. However, maximum CESG available in any one year is $1,000 per child (requiring a contribution $5,000).

Since 1998, additional grant programs have been added by the federal government. These programs are:

Canada Learning Bond (’CLB’)

Families that receive the National Child Benefit Supplement (generally families with net incomes under $44,701) are eligible to receive a $500 CLB and $100 in each subsequent year of eligibility for children born on or after January 1, 2004. Payments are available up to and including the year the child turns 15 years of age.

Additional Canada Education Savings Grant (’aCESG’)

CESG will be paid on the first $500 contributed to an eligible RESP in a year as follows:

  • The CESG matching rate is increased to 40% for families with net incomes below (line 236) $44,701 ($500 x 40% = $200)
  • The CESG matching rate is increased to 30% for families with net incomes between (line 236) $44,701 and $87,907 ($500 x 30% = $150) 
    Note: 2015 values, net incomes are indexed each year.

All grants are transferable to siblings in the event the beneficiary does not attend a post- secondary educational institution.

The contribution is not taxable when withdrawn (on the flip side, the contributor does not receive a tax deduction when the money is put in) but the Grant and any income earned is taxable to the child who is attending post secondary education when money is withdrawn. This child, now a young adult, is generally in a lower tax bracket than the parents or grand parents who have contributed to the plan. If the child does not attend post-secondary education, several options are available. The beneficiary can be changed to a brother/sister, contributions can be withdrawn, income can be rolled over to an RRSP or RDSP without penalty or income can be withdrawn subject to your marginal tax rate plus a 20% tax penalty.

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 at least $100 must be made in any 4 preceding years in order for the child to receive a grant on contributions made while the child is 16 or 17. Refer subsequent article (RESP Part 2) for additional information.

Children must have a Social Insurance Number (SIN) to set up an RESP and obtain the grants. You can download an application form online from the federal government web site or visit a Service Canada office who will issue a SIN on the spot.

Special note: RESPs make great gifts. Grandparents may want to consider making an RESP contribution to their grandchildren.

Christian Credit Union currently provides access to RESPs through two service providers: Ethical Funds® and term deposits through Concentra Financial. Monthly purchase plans are available for both options.

 

*Mutual Funds are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.

®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.

Ethical Funds® is a registered mark owned by Northwest & Ethical Investments L.P. and used under licence.


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