 What are the advantages of an RESP?Investment income earned within the plan is
not taxable until withdrawn from the RESP. Because the beneficiary
will be taxed on the accumulated income and will probably be in a
lower tax bracket when they use the funds for post-secondary
education, you have effectively benefited as a result of splitting
your family income. Who qualifies as a RESP beneficiary?Anyone can qualify for your RESP investment
plan: your children, your grandchildren, your spouse, other
relatives, even yourself. Keep in mind, however, that TD Waterhouse offers Family Plans only. You can
enroll more than one beneficiary in a single Family Plan if they
are related by blood or adoption, and one child may be enrolled in
multiple RESPs. Plus, you have the flexibility to change your
beneficiary at any time. The beneficiary is required to use the funds to pay for either
full time or part time studies in a qualifying educational program
requiring a minimum of 10 hours of instruction or work per week in
a course lasting at least 3 consecutive weeks. A program at a
foreign educational institution must last at least 13 weeks.
Students aged 16 and over who are enrolled in a qualifying part
time program requiring a minimum of 12 hours per month in a course
lasting at least 3 consecutive weeks are also be eligible to use
RESP funds. Qualifying educational programs include
apprenticeships, and programs offered by a university, college,
CEGEP or trade school. How much can I contribute to an RESP?There is no maximum yearly contribution
limit for an RESP. However, there is a maximum lifetime
contribution limit of $50,000 per beneficiary, for a term of 31
years. One beneficiary can be designated on several plans up to the
maximum contribution limit for that beneficiary. RESP proceeds must be used within 35 years of the start of the
plan. If your beneficiary decides not to attend a post-secondary
educational institution, you can appoint a different beneficiary.
Otherwise, the investment income can be transferred within certain
limits as an Accumulated Income Payment either to your personal or
spousal RSP* or in the form of a cash withdrawal subject to taxes
and certain restrictions. Contributions to the plan can be
withdrawn at any time with no tax penalty. Canada Education Savings Grant (CESG)The 1998 federal budget introduced the
Canada Education Savings Grant, The 2007 federal budget increased
the maximum annual RESP contribution that qualifies for the CESG,
thereby increasing the maximum annual CESG available for a
beneficiary. The CESG makes RESPs one of the most attractive ways
to save for a child's education. The following are some key points about RESPs and the CESG: - Retroactive to January 1, 2007, the
Federal Government will contribute a Canada Education Savings Grant
of 20% on the first $2,500 in annual contributions for
beneficiaries under the age of 18 subject to certain conditions for
beneficiaries aged 16 and 17. The maximum grant available is $500
per beneficiary per year (increased from $400).
- Missed RESP contributions cannot be
carried forward. However, the CESG availability can be carried
forward and will be paid on contributions of up to $5,000 per year
until used or the year in which the beneficiary attains age
17.
- The grant is not included in calculating
the RESP lifetime contribution limit.
- RESP beneficiaries qualify to receive the
grant only up to end of the year in which they turn age 17.
Beneficiaries aged 16 and 17 are only eligible if at least 1 of the
following conditions is met:
- a minimum of $2,000 of RESP contributions were made in respect
of the beneficiary before the year in which the beneficiary attains
16 years of age;
- a minimum of $100 in annual RESP contributions were made in
respect of the beneficiary in any four years before the year in
which the beneficiary attains 16 years of age
- The grant and any income that the grant
generates will be paid out to the beneficiary while enrolled in a
qualifying post-secondary educational program.
- If the beneficiary does not attend an
eligible post-secondary institution, the grant portion of the RESP
is returned to the Federal Government.
- The lifetime CESG limit for a child
remains at $7,200.
For example, if a family contributes $25 to an RESP every two
weeks, a total of $650 per year, their RESP receives a Canada
Education Savings Grant of $130. If the family contributes this amount every year over 15 years
(assuming a 5% rate of return on their investment), their education
fund would be worth $18,790 or roughly $4,700 for each of four
years of post-secondary education. Without the Canada Education
Savings Grant, the RESP would be worth $3,100 less or almost $800 a
year for each of the four years of higher education. Saving this
amount outside an RESP, if the income is taxable, could generate a
fund that is $5,500 smaller ($13,290). With the Canada Education
Savings Grant, saving inside an RESP can yield an education fund
worth 40% more than saving outside an RESP. Québec Education Savings Incentive (QESI)RESP beneficiaries who reside in Québec may also be
eligible for an annual refundable tax credit from the provincial
government under the Québec Education Savings Incentive
(QESI). This program consists of a basic amount of up to $250
that’s paid directly into a RESP. In addition to that
base amount, up to another $50 per year may be paid, to help lower-
and middle-income families. - Basic QESI is 10% of net annual contributions into an RESP
account, up to a maximum of $250
- Increased QESI is 5% or 10% on the first $500 of RESP
contributions, calculated on the basis of family income
- Unused QESI room may be carried forward into future years,
permitting an annual maximum of $500 in tax credits
- The QESI pays a lifetime maximum of $3,600
|
Trade Today Guide