Education

RESP: College Savings Plan With Tax Benefits

You’ve probably heard of an registered retirement savings plan, but what about a registered education savings plan? An RESP is a tax-friendly way to save towards your child’s education. With the average student graduating $27,000 in debt, according to the Canadian Federation of Students, an RESP is a great way to lend your child a helping hand.

What Is an RESP?

An RESP is a savings plan you can set up for your child to help save towards post-secondary education. Although you do not receive a tax refund, as you would with a registered retirement savings plan, your contributions grow tax free.

When it comes time for your child to attend college or university, the money is taxed in your child’s hands instead of yours. Your child is not likely to have to pay any income tax, as he will be entitled to the tuition deduction and is unlikely to have much employment income during the school year.

Similar to an RRSP, an RESP can hold a variety of investments, such as stocks, bonds and mutual funds. Opening an RESP is as easy as visiting your financial institution. A lifetime maximum of $50,000 may be contributed in an RESP. By contributing to an RESP, your child may be eligible for government grants.

Who Can Be a Beneficiary?

To be eligible to receive Educational Assistance Payments, your child must be appointed as the beneficiary of the RESP. To be a beneficiary, your child must meet the following criteria:

  • Your child must have a Social Insurance number.
  • Your child must be a resident of Canada for income tax purposes.

Who Can Be a Subscriber?

A parent who opens an RESP for your child is considered to be a subscriber. You must provide your SIN to your financial institution to open an RESP for your child. If you are opening an individual plan, anyone can open an RESP for a qualifying beneficiary. However, if you are opening a family plan, each beneficiary must be related by blood or adoption (such as a parent or grandparent).

Individual vs. Family Plans

When you are opening an RESP for your child, you have to decide whether you want to open an individual plan or a family plan. There are significant differences between the two plan types.

Individual plans are a lot more restrictive. They are designed to fund the education of only one beneficiary. However, the subscriber and beneficiary do not have to be related by blood or adoption. Anyone can open an RESP for a qualifying beneficiary; you can even open one for yourself.

If you are a parent with more than one child, consider opening a family plan. Family plans offer a lot more options for parents. As long as your child is under 21 years of age, you can open a family plan. Family plans are a lot more flexible; for example, if one child decides not to go to college or university, your other children can still use the money in the RESP.

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