Give your children the precious gift of education with an RESP

An RESP will help kick-start your children’s education plan

Giving our children the gift of an education plan requires funding, and an RESP in Canada is the best savings plan for post-secondary education available. The Canadian government offers substantial incentives to begin saving for you education. There is the Canada Education Savings Grant (CESG), tax sheltered growth of money, and the ability to transfer the funds to your children when being withdrawn for education expenses. This article will outline the advantages of investing into an RESP for your children’s education plan.

The basics of how an RESP works

An RESP is a savings plan for your child’s education. It has been designed by the Canadian government to help parents and families save money for their children in a tax efficient way with ample incentives to put money away for your kids. An RESP is not managed by the Canadian government but by many brand name financial institutions, like banks, investment companies and insurance companies (like Industrial Alliance Pacific).

To keep things simple, I will outline how an RESP works in point form, step by step, as you set up the plan, contribute to it and ultimately spend the money for your child’s education.

• Parents or grandparents open up an RESP for their child. The parent* is the subscriber to the RESP. The child is the beneficiary of the RESP.
• An RESP can be designed as a family plan, where all money is pooled and can be spent by all children in the family; or as an individual plan designed for the benefit of one child.
• Parents can contribute up to $2,500 per year per child into an RESP.
• The Canadian government with give you a top up on your initial deposit called the Canada Education Savings Grant (CESG) described below.
• All money inside the RESP will grow full tax sheltered until it is withdrawn for education expenses, like tuition, books, food, lodging, transportation, etc.
• The tax sheltered growth on the invested money is taxed in the hands of your child, the beneficiary, who is at a much lower tax rate and has tax credits for post-secondary education.
• Each child can have a maximum of $50,000 contributed to his/her RESP.
• The RESP must be fully liquidated (spent) with 35 years of it originally being set up.

* A Parent must be related by blood or adoption for the family RESP plan, but could be anyone from a parent, grandparent, godmother, godfather, aunt, uncle, even a friend when setting up an individual RESP.

Understanding the Canada Education Savings Grant (CESG)

The CESG is a special government contribution to help families save for their children’s education. You MUST have a Social Insurance Number for your child in order to access the CESG! Typically the CESG contributes 20% top up to your annual savings into the RESP, to a mximum of $2,500 per year ($500 per year from the Canadian government). There is additional CESG contributions to your child’s RESP depending on your family’s income:

• Family income below $35,595, the CESG gives you 40% for the first $500 you save into your child’s RESP
• Family income below $71,190, the CESG gives you 30% on the first $500 you save into your child’s RESP
• A family income above $71,190 per year will only get the base 20% top up on the first $500 you save.

The family income amounts are updated annual. No matter what your income, you will still receive the 20% CESG top up on the additional $2,000 you save per child’s RESP.

The CESG has a maximum of $7,200 per child that the federal government will contribute. This means, if you were maximizing the $2,500 per year and were eligible for 20% CESG top up, you would maximize the CESG in about 14.5 years.

The Canada Learning Bond for low income families

For those families who are lower income and are also trying very hard to save for their children’s education, the Canadian government has another federally funded savings plan called the Canada Learning Bond. You have to have a family income below $35,595 per year (this would make you eligible for the National Child Benefit Supplement, also called the family allowance or baby bonus). Your child must be born after December 31, 2003. You can then get an immediate $500 top up from the Canada Learning Bond, and an additional $100 per year per child for 15 years, so long as you continue to receive the National Child Benefit Supplement.

The Canada Learning Bond can add up to $2,000 per year to your child’s RESP plan. The great news is you can set up an RESP with a very minimal deposit, like $100 to open the account, and not even make monthly or annual contributions. Of course you would not get the CESG without contributing, but you would still receive the Canada Learning Bond if your family income remained below $35,595 per year.

What Post-Secondary Education is an RESP eligible for?

Here is a brief overview of what constitutes a Qualifying Educational Program:

• Full-time education—In Canada: Usually, a course of study with a duration of at least 3 weeks in a row, with at least 10 hours of instruction or work each week.
• Full-time education—Outside Canada: A program at a foreign educational institution with a duration of at least 13 weeks.
• Part-time education—In Canada: A program with at least 12 hours per month spent on courses.

Programs include apprenticeships as well as other programs offered by:

• CEGEPs
• trade schools
• colleges
• universities, and
• other institutions that are also certified by the Minister of Human Resources and Social Development.

Please see the CanLearn website for a complete list of designated educational institutions.

What happens if your child does not go to post-secondary education?

If your child does not go to post-secondary education then you have a few options (besides forcing them to go). If your RESP is a family plan, the other children who do attend university or college can use the funds, and the child who decides not to go can forfeit their education savings. You can always hold onto the money for up to 35 years from the day you started the plan, in case your child decides to get education at a later time. Or, finally, you can role the money into your RRSP.

The last option is the least desirable. Your child must be older than 21 for you to make a withdrawal from the plan and contribute to your RRSP. Of course, you must have the available RRSP room to make the transfer, otherwise there is no way you can do it. The maximum amount you can transfer into your RRSP is $50,000. You must also repay the CESG.

If you don’t have any available RRSP room you can either withdraw the investment amount as income, or you can donate the entire RRSP to an accredited educational institution. When you withdraw the funds there will be an additional 20% tax on top of regular income tax AND you must repay the CESG.

Overall, it is best if your children attend some form of post-secondary education and use their RESP money – that is the best option.

The Industrial Alliance Pacific My Education RESP Plan

At Life Guard Insurance we recommend the Industrial Alliance Pacific RESP called My Education. This plan offers all the features of regular RESP investing plus the added security of investing into segregated funds instead of riskier mutual funds. A segregated fund has all the market upside performance of a regular fund investment with added insurance guarantees. If the principle you invested has lost value, then after 10 years your investment capital is restored to its original 100% level. The My Education RESP also offers you:

• A wide range of guaranteed investments and funds.
• Easy access to financial markets.
• Expertise of leading fund managers such as Industrial Alliance, Fidelity, Catapult, DB Advisors, Oppenheimer, Mackenzie Cundill, Franklin Templeton Investments and Dynamic.
• A guarantee on investments that can reach or exceed 100% of your invested capital.

Industrial Alliance Pacific My Education Client Booklet

Industrial Alliance Pacific My Education Investment Fund Overview

Life Guard Insurance can help you set up an RESP for your child’s education plan today

At Life Guard Insurance we want to help you plan for your children’s future as much as your own. Anyone can start an RESP for their kids, no matter what your income. You can save as little as $25 per plan or $10 per beneficiary under the family plan. Get access to the free government of Canada education money today. Feel free to contact Life Guard Insurance if you would like more information or advice about getting an RESP for your child(ren).

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about an RESP for your children’s education plan would also be very much appreciated.

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