Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP)
enables Canadian citizens
or permanent residents to open a savings account
and start putting money aside for the higher education
of their child, nephew or grandson. The income that is placed in a RESP is not subject to taxation
as long as it is held there. Moreover, these savings may grow very quickly, due to the special support programs (Canada Education Savings Grant and Canada Learning Bond) that the federal government of Canada
has developed especially for holders of RESP savings accounts.
In order to open a RESP account, one has to first get a social insurance number
and then choose a RESP provider. A RESP provider could be a bank
, a credit union
or any other financial institution that offers such accounts. Here are some of the most popular providers of registered education savings plans available in Canada
: Canadian Imperial Bank of Commerce (CIBC
), Acadia Financial Services, Credit Union Central of British Columbia, Desjardins Trust, Heritage Education Funds Inc, HSBC Investment Funds (Canada) Inc, etc. Whatever RESP provider you may choose, you have to ask the customer service officer about the investment options that their company provides and request a list of the possible fees and penalties that may apply. It will not be too far fetched to say that choosing a RESP provider is one of the most important decisions that you are about to make in your life, as you practically entrust it with taking care of your money and providing better education opportunities for your child.
To become eligible for receiving payments from your registered education savings plan, which is also known as Educational Assistance Payments (EAPs), the child named in the contract you have signed with the provider should enrol in a course of study lasting at least three consecutive weeks. The minimum period of instruction or work is 10 hours per week, which is also termed a qualifying educational program. On its part, each education assistance payment is comprised of the Canada Education Savings Grant, the Canada Learning Bond, amounts paid under a designated provincial program (if there are any) and the earnings that the RESP account has yielded. It should be mentioned that EAPs are not tax-free and therefore, they should be included as income in the studentís annual tax return.
As RESP accounts can remain open for as long as thirty-six years, it is not a big issue if the beneficiary does not want to continue his or her education immediately after completing high school. However, if the child or, more accurately, the teenager is firmly decided to become a mechanic but not a nuclear physicist, you can always transfer the money to the registered education savings account of his/ her brother or sister or put the money in a registered retirement savings plan
. Note that any money received from the Canada Education Savings Grant must be returned to the federal government if the beneficiary decides not plan to continue his or her post-secondary education.