Registered Education Savings Plan

An RESP is a tax-deferred account to help you save for a child’s post-secondary education. Anyone can open an individual RESP and contribute money at any time, up to a lifetime total of $50,000 per child. Contributions aren’t tax deductible, but any investment income earned within the plan will be taxed only when it’s withdrawn. If that income is withdrawn to pay for the child’s education it will be taxed in the hands of the beneficiary, not the subscriber.

Through the Canada Education Savings Grant (CESG), the federal government will match up to 20% of your RESP contributions up to a maximum of $500 per child, per year, to a total of $7,200 per beneficiary, provided one of the two conditions mentioned previously are met to qualify for ages 16 and 17 whereby a minimum of $2,000 in contributions are deposited and not withdrawn before year end in year beneficiary turns 15 or $100 in contributions are made in any 4 years (consecutive or not) before year end when beneficiary turns 15 years old.

There are three main components of an RESP.

• Subscriber / Plan Holder: the person who opens and owns the RESP
• Beneficiary: the student for whom the RESP exists
• Provider: the financial institution that sets up the RESP

RESP funds can be used to pay for the costs of the following full-time or part-time educational programs:

• Apprenticeships
• Trade schools
• Colleges
• Universities

There are many good reasons to get an RESP for a child:

• You want to make sure that a child in your life can get a post-secondary education and have the benefits of the Canada Education Savings Grant program.
• You want a tax-efficient account where relatives or family friends can celebrate a child’s special occasions (birthdays, etc.) by contributing directly to the beneficiaries post-secondary education.

• Tax-sheltered savings: An RESP allows your savings to grow tax-free until they are withdrawn to fund your child’s education. This means that you won’t have to pay taxes on the investment gains within the RESP, providing a significant advantage over other forms of saving where taxes may be owed on investment growth.
• Extra government contributions: Through programs like the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), the government provides additional contributions to eligible RESPs. The CESG matches a portion of your contributions, effectively boosting your savings, while the CLB offers financial assistance to low-income families, providing even more funds to help save for education expenses.
• Anyone can set up and contribute to an individual RESP: Unlike some other education savings vehicles that may have restrictions on who can open or contribute to them, RESPs are accessible to anyone. Parents, grandparents, other family members, and even friends can open an individual RESP for a child and contribute to it, making it a flexible and inclusive way to save for education. This flexibility allows for greater collaboration in funding a child’s future education, spreading the financial responsibility across a wider network of supporters.

To open an RESP you will need:

• Your social insurance number
• Your child’s social insurance number
• Your child’s birth certificate or permanent resident card

The government grants available for RESP contributions include the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). The CESG matches a portion of the contributions made to an RESP, helping to accelerate the growth of savings. The CLB provides additional funds for low-income families, offering further support for saving towards a child’s education. These grants effectively supplement RESP contributions, providing families with valuable financial assistance to cover educational expenses.

There are primarily two types of RESPs available: individual, family, and group plans.

Individual RESP: This type of plan is set up for one beneficiary and offers flexibility in terms of contributions and investment choices. It’s suitable for families with one child or for those who want to allocate specific funds to each beneficiary. Anyone can be a subscriber and beneficiary. There are no restrictions. Subscriber and beneficiary may also be one in the same.

Family RESP: Family plans allow multiple beneficiaries, usually siblings, to share the RESP. All beneficiaries within the Family Plan must be related to the subscriber by blood or adoption. This type of plan offers flexibility as contributions can be used for any of the beneficiaries’ education expenses. It’s a convenient option for families with more than one child.

Each type of RESP has its own features and benefits. Individual RESPs provide flexibility and control over contributions and investments. Family RESPs are convenient for families with multiple children as contributions, grants and interest income from investments can be shared among beneficiaries. Canada Learning Bond is child specific and is not shared in a Family RESP.

To open an RESP through UCU, the first step is to become a member of our credit union. Once you’ve joined UCU, you have the option to open an RESP by visiting one of our conveniently located branches. Our friendly staff will guide you through the process and assist you in selecting the best RESP option to suit your educational goals.

There is no annual limit for contributions to RESPs. However, there is a lifetime limit of $50,000 on the total amount that can be contributed to all RESPs for a beneficiary.

You can contribute to an RESP for up to 31 years, and the plan can remain open for a maximum of 35 years.

No, RESP (Registered Education Savings Plan) contributions are not taxed. Contributions to an RESP are made with after-tax dollars, meaning you’ve already paid taxes on the money you’re putting into the account. When the funds are withdrawn for educational purposes, including for post-secondary education, they are taxed in the hands of the student, who usually has a lower income and may be subject to minimal or no tax on those withdrawals.

No, you cannot withdraw from an RESP at any time. RESP withdrawals are subject to specific rules and conditions. You are eligible to initiate withdrawals from your RESP for educational use once your child has completed high school and formally registered at an eligible post-secondary educational institution. A proof of enrollment letter is required to begin the RESP withdrawal process.

You are eligible to withdraw from the RESP for educational use once your child has completed high school and formally registered at an eligible post-secondary educational institution.

There are two types of educational withdrawals:

Post-Secondary Education (PSE) withdrawals: PSE withdrawals refer to the portion of funds in the RESP consisting of your contributions. These contributions were made with after-tax dollars and can be withdrawn tax-free for educational purposes. There is no limit to the amount that can be withdrawn at a time.

Education Assistance Payment (EAP): EAPs are the earnings generated within the RESP plus any government grants received, such as the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), and investment interest income if applicable. EAPs can be used to cover various educational expenses, including tuition fees, textbooks, supplies, and living expenses while enrolled in a qualifying post-secondary educational program. EAPs are taxable in the hands of the beneficiary and are subject to specific rules and regulations outlined by the RESP provider and government authorities. EAP withdrawals have a $8,000 limit (or $4,000 if the student is enrolled part-time) during the first 13 weeks of schooling. Once the 13 weeks have passed, the EAP threshold for the year becomes $28,122 which is the limit for 2024. Threshold may be exceeded if proof of expenses are provided.

An RESP can be used to pay for eligible education expenses, such as tuition, books, rent, and transportation.

RESP accounts can hold a variety of investments, including savings accounts, GICs, mutual funds, stocks, bonds, and ETFs.

Opening an RESP (Registered Education Savings Plan) offers certain advantages specifically tailored for educational savings. RESP contributions are eligible for government grants, such as the Canada Education Savings Grant (CESG), which can significantly boost savings over time. Additionally, income earned within an RESP is tax-sheltered until withdrawn for educational purposes. However, RESP funds must be used for education, and there may be penalties for non-educational withdrawals.

A TFSA (Tax-Free Savings Account) provides more flexibility in how you can use the funds. While there are no government grants associated with TFSA contributions, the income earned within a TFSA is tax-free and can be withdrawn at any time for any purpose without penalty. This flexibility may be beneficial if you’re uncertain about whether the funds will be used for education or if you have other financial goals in mind.