A short guide to RESPs

Education isn’t getting any cheaper. So you better start saving.

Consider the babies of 2007. When the time comes, how much will it cost for them to go to university? It already costs nearly $4,400 for a year’s worth of tuition and fees at the average Canadian university. Add in as much as $14,000 per year for residence and other expenses. Factor in inflation: assume that costs will rise by 5% per year. Result: it could cost over $120,000 for students to spend four years in university starting in 2024, according to the Registered Education Savings Plan Dealers Association of Canada. And that’s why they say that you should start saving for your children’s education early.

The Conservative budget delivered last week made significant changes to the Registered Education Savings Plans (RESP), a move intended to encourage parents to save for their children’s education.

Changes include:
• eliminating the $4,000 annual limit to allow parents to save more money at once, such as an inheritance.
• raising the lifetime limit from $42,000 to $50,000 per child.
• raising the limit for annual contributions that qualify for the 20 per cent Canada Education Savings Grant from $2,000 to $2,500. This means that you can be awarded up to $500 to top up savings.
• opening the program to part-time students. Now students with at least 12 hours of class a month will be able to receive up to $2,500 per semester. Previously, only students with at least 10 hours a week qualified.

How does a RESP work anyways?

• An RESP contribution is not a tax deduction like an RRSP. However, it allows for tax-free growth and access to government incentive programs, such as the Canada Education Savings Grant and the Canada Learning Bond.
• Lower-income families, who qualify for the National Child Benefit Supplement, receive additional grants through the Canada Learning Bond.
• A RESP can be opened in a child’s name by anyone. You do not have to be related to the child.
• Parents living in Alberta may qualify for an additional $500 grant from the Alberta Centennial Education Savings Plan.
• If the child does not go to university or you haven’t used all funds at the end of its lifespan, you can transfer up to $50,000 of your RESP to your RRSP, provided you have the room. You must repay any grants from the CESG or CLB to the government. If you choose to cash in your RESP instead, tax must be paid on any interest income.
• You may choose a family or individual plan which allows you to manage your portfolio, or a group plan.
• Some RESP providers may charge fees or limit contributions. Be sure to shop around for the best deal.

More information can be found on the Government of Canada site.