Post-secondary education is very expensive in North America, and most parents will worry about it unless they are very wealthy. Obviously, not all kids go to college or university, but if they do and you haven't saved money for it, it could be a big problem for you. This would probably happen just as most families are starting to feel financially stable.
If you have kids who might want to go to college after high school, you need a Registered Education Savings Plan, or RESP, for your financial health. An RESP is backed by the government (it's registered with the Canada Customs and Revenue Agency) and can grow without paying taxes. The student may have to pay taxes on the money from the plan when it comes due.
Plans are run by private companies or people (Promoter), who will collect payments and invest them as needed. Each beneficiary (student) can get up to $4,000 per calendar year, and a total of $42,000 can be put in without being taxed. Each student can have more than one plan, but each student can only have a certain number.
The most important thing about RESPs is that the government will add 20 percent ($400) to the first $2,000 per calendar year until the student turns 17. This is called the Canada Education Savings Grant (CESG), and any money put into it is not counted toward the yearly tax limit.
The most a student can get from CESG over the life of the plan is $7,200. Any CESG that isn't claimed each year will add up, and up to $800 can be paid out if it hasn't been claimed before. Any CESG payments will have to be paid back to the government if the RESP is never used for education.
For the student to apply, he or she must live in Canada and have a Social Insurance Number (SIN), which must be given to the promoter when the plan starts. Also, the person making the contributions will have to give their Social Security number (SIN).
Different RESP Plans
Plan comes in three main forms:
Non-family: There can only be one beneficiary, but anyone (grandparents, godparents, etc.) can make contributions whenever they want and for however much they want to pay.
Family: There can be one or more beneficiaries, as long as they are related by blood or have been adopted by the person or people giving the money. There are no rules about when or how much can be paid in (apart from the tax implications of over subscribing).
Group: Usually, foundations offer these plans. They decide how much is paid in and when. Each age group will have its own plan, and everyone in the group will take part. There are some pretty complicated rules that you should talk to the plan providers about before making a decision.
The End of a RESP
At termination or maturity, you have a few choices:
- The money can be put into a different RESP.
- The student enrols in a qualified programme at a postsecondary school and finishes the whole thing. At first, the plan can pay up to $5,000. After 13 weeks, however, there is no limit to how much can be paid as long as the student stays in the programme. These payments are called EAPs, which stands for Educational Assistance Payments. The student can't get EI (employment insurance), and the programme can't be a part of their job (an apprenticeship for example).
- The student in question does not go to college or university. The person who gave the money gets it back without having to pay tax on it. The government gets its money back from the CESG. Any money that comes in from the plan will be taxed.
- The money can be given to a school that has been chosen.
http://www.onestopimmigration-canada.com/RESP.html has more detailed information.
