Registered Educational Savings Plans – RESP’s

Why They Are a Great Choice for Educational Costs

September 11, 2015

I read in the paper last weekend that the average Canadian spends more on taxes then necessities for their family! That is incredible. There are few programs in which the government gifts money towards a family’s cost of anything… except RESPs. If used correctly RESPs can collect a lifetime maximum of $7,200 of free government money for each child!

If an RESP is started early in a child’s life the government grant money known as CESGs (Canada Education Savings Grants) along with the contributions can make a huge impact on the cost of education of little Johnny. Worth a mention, the RESP can accept donations from anyone, with no minimums! Grandparents, Aunts, Uncles… you name it. We hear of cases in which Parents ask that instead of gifts a donation to an RESP would be appreciated!

There is some confusion over how RESPs work, here is a short list addressing the main points:

How to take advantage of money going in:

  • There is no annual contribution limit, and there is a $50,000 lifetime limit per child
  • When you contribute to an RESP you do not receive a contribution receipt
  • You can contribute to an RESP up until the age of 31 (hardly a kid anymore), but you will only receive the CESG up until the child is 16
  • If you contribute $2,500 per year you will receive $500 of CESG (it is 20 cents on a dollar so if you contribute less the CESG will be less)
  • You can catch up on CESG contributions in future years if cash flow doesn’t allow for regular contributions

Benefits on withdrawals:

  • You can open a family RESP and have multiple children on it (as long as they are siblings)
  • The funds in the RESP can be withdrawn for a variety of educational purposes; apprenticeship programs, trade schools, University, College, books, tuition, rent, food, transportation ect.
  • The withdrawals from an RESP are taxed in the students hands, this is usually not a huge consideration since the Student is generally in a low tax bracket

At The Wooding Group, we do personalized RESP reporting annually giving our clients a snapshot of how much to contribute and whether they are on track to their RESP goal.

Another thought, maybe the kids should pay for a portion of their education – there is an awesome article in Forbes about that exact thing. The author Susan Adams explores how much is the right amount to contribute to your child’s education. You can read that article here – you will have to click a button in the far right hand corner to go directly to the article.

Give us a call to discuss your personal RESP questions!