The Registered Education Savings Plan (RESP) is a tax-sheltered plan that can help you save for your child’s post-secondary education. With the high cost of education today, many parents, grandparents and other family members are recognizing the need to save well before the expense become a reality. An RESP combines flexibility, tax-deferred investment growth and direct government assistance to help you reach your education savings goals for your children.
the principal advantages of resps are
- Access to the Canada Education Savings Grant (CESG), and
- A source of tax-deferred income.
Tax Benefits of RESPs
While set up originally by parents (or other adult family members), RESPs are a tax shelter designed to benefit post-secondary students. With an RESP, contributions are taxed at the contributor’s tax rate, while the investment growth is taxed on withdrawal at the recipient’s tax rate.
RESP recipients are typically post-secondary students who generally pay little or no incom tax. This benefit Provides the student with a solid source of funds to cover his or her post-secondary education.
Opening an RESP
An RESP can be set up for any beneficiary, including your children, grandchildren, nieces, nephews or family friends. The subscriber to the plan is the person who opens the plan and makes contributions to it. The subscriber also designates the beneficiary who can use the funds for their post-secondary education. Each beneficiary must be a Canadian resident and have a social insurance number (SIN).
Contributing to an RESP
The subscriber can contribute any amount to an RESP, subject to a lifetime contribution limit of $50,000 per beneficiary. You can contribute to an RESP for up to 31 years, and the plan can remain open for a maximum of 35 years.
Although you cannot deduct the contributions made to an RESP form your taxable income, the subsequent investment earnings on RESP contributions are tax-deferred. When plan earnings are withdrawn to cover qualifying post-secondary education expenses, they are taxable to the beneficiary, not the subscriber.