Registered Education Savings Plans (RESPs)
Registered Education Savings Plans (RESPs) are one of the best ways to meet your educational savings goals. With RESPs, you can make contributions now towards the future cost of a child’s education. Unlike RRSPs, contributions made to an RESP are not tax deductible. However, the contributions grow tax-sheltered in the account, and the income earned on the contributions is not taxable until paid out to a beneficiary (who is typically taxed at a very low rate, if at all).
Withdrawals of income can be made to a beneficiary in full time attendance at a qualified postsecondary institution.
In this past budget the government implemented two major changes to the contribution rules for the Registered Education Savings Plan (RESP):
- The elimination of the $4,000 annual RESP contribution limit
- The increase of the lifetime RESP contribution limit to $50,000 from $42,000.
The ability to lump-sum fund an RESP for a child’s post-secondary education may outweigh the benefits of collecting the annual Canada Education Savings Grant(CESG).
The CESG rules are also changing. The maximum annual RESP contribution that will qualify for the 20% CESG will increase to $2,500 from $2,000, thereby increasing the maximum annual CESG per beneficiary to $500 from $400.
The maximum lifetime CESG limit was unchanged and will remain $7,200.
Government grant payments will be made directly into the RESP and can be invested along with the contributions. The CESG can be included in the educational assistance payments paid out the to beneficiary once they are pursuing higher education, however, any unused CESG must be repaid to the government.