Registered Educational Savings Plan-RESP

What is Register educational saving (RESP) plan?

Registered Education Savings Plan, or RESP, is a savings account used by parents to save for their children’s higher education in Canada. The principal advantages of RESPs are the access to the Canada Education Savings Grant (CESG) and a source of tax-deferred income.

How much is our contribution and how much is government grants for RESP?

Recently, private universities and colleges have been set up in several provinces with much higher tuition than government support institutions. Its forecast over $12,000 a year plus living expenses at a Canadian university per person. You can contribute up to a lifetime maximum of $50,000 per child and access to government grants of up to $9,200 per child

What is Canada Education Savings Grant (CESG) and how it works

The Canada Education Savings Grant (CESG) is provided to complement RESP contributions, wherein the government of Canada contributes 20% of the first $2,500 in annual contributions made to an RESP. After changes introduced in the 2007 Canadian federal budget, the government may contribute up to $500 per year to a participating RESP. Any contributions over this amount are subject to taxation.

The government grants introduced in 2005, entitled Additional CESG, allowed an additional 10% or 20% for a total of an extra 30 or 40 cents on each dollar of the first $500 contributed to an RESP, depending on the family income of the beneficiary’s primary caregiver.

What is Canada Learning Bond (CLB) and how much is it?

The government of Canada also provides a Canada Learning Bond (CLB) to encourage low-income families to contribute to an RESP. Families with children born on or after January 1, 2004, and who receive the National Child Benefit, will receive an additional $500 CLB when they open an RESP and $100 for each year they remain eligible.

How and when we can withdraw from RESP account?

-Early withdrawals

Principle amount deposited to RESP account can be withdrawn at any time by its contributor. In this case, any eligible CESG payments on those contributions must be repaid to the Government. If the student will not attend a post-secondary institution, any accumulated interest may be withdrawn by the contributor; this is called an AIP (Accumulated Income payment). To receive this AIP, the plan must be in place for at least 10 years and all beneficiaries must be over 21 years old. This AIP is taxed as income unless it is rolled into a registered retirement savings plan (RRSP), subject to individual contribution limits and applicable rules.

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