Are you concerned about the rising costs of your children’s education? School fees have been increasing at an unreasonable rate throughout the year, causing people to worry about the cost of tuition. Low-to-mid-income individuals are forced to make difficult choices between sending their children to school and searching for employment (RESP).

The idea of “free” education has become a myth, as it has turned into a luxury that many families and children cannot afford. The Canadian government recognizes that its citizens’ fundamental right to education is being violated. To help Canadians save money for their higher education, the government has established the Registered Education Savings Plan (RESP). This plan provides an excellent opportunity for parents, grandparents, or guardians to save money for their child’s post-secondary education. In addition to other educational benefits, the government also supports and assists families.


What is a Registered Education Savings Plan (RESP) and how does it work?

A Registered Education Savings Plan (RESP) is a savings account created specifically for a child’s post-secondary education. The government does not tax this account, and it is partially funded by the government to help facilitate the next generation’s access to a quality education. The federal government also provides grants through the Canada Education Savings Grant (CESG) to support this program.

One of the benefits of the RESP is that there is no tax due date, and withdrawals are straightforward, particularly since most students have little to no income. However, those making contributions to the plan must pay taxes.

A RESP has three main parties involved: the Subscriber, who establishes the RESP and makes contributions to it, the Beneficiary, who is the child receiving contributions for the education plan and associated expenses, and the Promoter, which is a company that provides RESPs, such as… (complete the sentence according to context).


What are the different types of Registered Education Savings Plans?

There are various types of Registered Education Savings Plans (RESPs) that cater to different children’s needs and support.

Firstly, there are Family RESP plans, which allow multiple beneficiaries (siblings) to use the same RESP account.

Secondly, Group RESP plans provide a fixed schedule of contributions and payments, typically over several years. However, these types of plans may have restrictions and penalties if the beneficiary doesn’t enroll in post-secondary education or if contributions are missed.

Thirdly, Individual or Non-Family RESP plans are for parents who want to set up separate RESP accounts for each of their children. These types of plans offer more flexibility and control, but there may be higher fees associated with them.

Overall, choosing the right RESP plan depends on various factors, including the number of beneficiaries, investment goals, and flexibility of contributions and withdrawals.


RESP Plans for Individuals and Non-Family Members:

An individual Registered Education Savings Plan (RESP) can be created for single individuals who want to save for their own education or for a non-related child’s education. Anyone can join this type of plan, and eligible recipients can receive both the Canada Education Savings Grant and the Canada Learning Bond. However, there are some restrictions for applying to individual or single RESP plans. For instance, the beneficiary and subscriber cannot be blood relatives or adopted relatives. Moreover, the subscriber can make contributions to the plan on a flexible payment plan up to the annual limit.


Registered Education Savings Plans (RESPs) for Families

Family RESP plans allow for one or more beneficiaries who are related to the subscriber by blood or adoption, such as a son-in-law, brother, nephew, or grandson. The subscriber has control over the payment plan and can decide on the amount they want to contribute. Additionally, a portion of the RESP can be designated by the subscriber for the beneficiaries.

The beneficiaries receive a portion of the earnings, and one of them is eligible for the Canada Education Savings Grant (CESG). If the family plan only applies to siblings, they can also receive the Canada Education Savings Grant and the Canada Learning Bond.


Registered Education Savings Plans for Groups (Group RESP Plans)

Group RESP plans are distinct from other types of registered education savings plans. They can only be established for one child, regardless of their relation to the subscriber. Group plans have fixed payment schedules, and if a payment is delayed, penalties apply. The subscriber’s contributions are pooled with those of other investors whose children are the same age and enrolled in the same school. The group scholarship provider usually invests the funds in low-risk assets.


Open RESP Plans for Individuals and Single People

Individuals or single people can create a Registered Education Savings Plan (RESP) that anyone can join. Eligible recipients may receive both the Canada Education Savings Grant and the Canada Learning Bond. However, there are certain rules for applying to these individual or non-family RESP plans, such as the beneficiary and subscriber cannot be blood or adopted relatives. Moreover, the subscriber has the flexibility to contribute to the RESP on a customized payment plan, subject to the yearly cap.


How does a Registered Education Savings Plan (RESP) function?

The Registered Education Savings Plan (RESP) operates in a simple and straightforward manner. The account offers tax-deferred growth, encouraging savings for post-secondary education. The Canadian government provides up to $2500 per student every year at a rate of 20%, which translates to an annual contribution of $500 to your Canada Education Savings Grant.

Families with lower income receive even more funds, with up to a 40% cost match based on their income situation for those with an annual income of less than $40,970. Additionally, the Canadian government provides extra assistance to low-income families through the Canada Learning Bond, which offers additional RESP benefits. For instance, it provides lifetime grant offers of up to $2000 each. However, if the child fails to enroll or attend post-secondary education, all grants and benefits must be returned to the government.


What expenses can be covered by a Registered Education Savings Plan (RESP)?

The RESP funds can be used to pay for various post-secondary education expenses, not just limited to colleges and universities. It includes technical schools, distance learning, and other eligible institutions.

To withdraw the money, the student must provide proof of enrollment in the institution. Once enrolled, the RESP funds can cover a wide range of expenses such as rent, food, stationery, books, and apartment rent. Transportation costs such as vehicle, bus, and taxi expenses can also be covered. It is not required for the student to keep track of expenses.


How does RESP income affect taxes?

If you receive an Educational Assistance Payment (EAP) from your RESP, you are required to report it as income. However, since most students have low earnings while attending school, they may not be required to pay income tax on this amount, depending on their individual circumstances. Your RESP provider will provide you with a T4A slip for tax purposes.


In conclusion, this blog has covered the Registered Education Savings Plan program, including its various types, how it functions, and what it can be used for. The benefits of this program are numerous, making it an attractive option for families. Low- to middle-income families are particularly encouraged to apply in order to take advantage of the benefits offered by RESP.