Why an RESP?

The government wants to give you money! With all the concerns about the cost of post-secondary education, you might be surprised to learn that 40% of parents surveyed recently by Ipsos-Reid have not heard of the Canada Education Savings Grant (CESG). The CESG is a federal subsidy for Registered Education Savings Plans (RESPs), where Ottawa matches 20% of your contribution, adding up to $500 to the value of your RESP, per child per year, to a lifetime maximum of $7,200. Additional rules and requirements apply, but the RESP/CESG combination is a powerful education savings tool.

What is a Registered Education Savings Plan (RESP)?

An education savings plan is a savings vehicle generally used by parents to save for their children's post-secondary education. Contributions to an RESP are not tax deductible, however, earnings accumulate tax-free. The ultimate purpose of the plan is to use the funds for educational purposes, at which time the child (beneficiary) can draw upon the principal, interest and accumulated grant proceeds.

A registered education savings plan (RESP) is an ESP that has been registered with Canada Revenue Agency.

New in 2008

Contribution Period - Under an individual plan or family plan, contributions may continue for 31 years following the year the plan was opened; however, under a family plan, contributions to a particular beneficiary must cease when the beneficiary is age 31.

Mandatory Termination Date - An individual or family plan must be terminated by the end of the 35th year that the plan was opened. An idividual plan that is a specified plan (the beneficiary is entitled to the disability tax credit) must be terminated by the end of the 40th year that the plan was opened.

Maximum Age of an Individual Added - There was no change to the maximum age that an individual may be added to an RESP:

• Individual Plan - any age
• Family Plan - individual must be under the age of 21

However, under a specified individual plan, no other individual may be designated after the 35th year the plan was entered into. This was previously the 25th year.

Educational Assistance Payments (EAP) - An eligible beneficiary may receive an EAP up to six months after ceasing to be enrolled in a qualifying education program or specified educational program. Previously, the beneficiary had to request the EAP while enrolled.

New in 2007

Annual Limit - Effective 2007, the $4,000 annual limit restriction has been eliminated. A Subscriber may contribute any amount, provided the total contributions do not exceed the maximum lifetime limit.

Lifetime Limit - The lifetime RESP contribution limit for a beneficiary has increased from $42,000 to $50,000, effective 2007 and subsequent years.

CESG - The basic CESG has increased from $400/year to $500/year, effective 2007. Eligible beneficiaries will now receive 20% Basic CESG on the first $2,500 RESP contributions. Maximum lifetime limit remains unchanged at $7,200 per beneficiary.

Unused CES Grant Room - Eligible beneficiaries will accumulate $400 CES Grant Room each year from 1998 to 2006 inclusive and $500 CES Grant Room for 2007 and subsequent years.

The increase to the Basic CESG amount will also increase the maximum Basic CESG payable in one year from $800/year to $1,000/year.

If an eligible beneficiary has Unused CES Grant Room of $1,000 or more, and the subscriber makes a $5,000 RESP contribution, the eligible beneficiary would receive $1,000 Basic CESG ($5,000 x 20%).

Educational Assistance Payment (EAP) Qualifications - The EAP eligibility requirements have been amended for 2007 and subsequent years. A beneficiary may receive EAP if:

1. The individual is, at that time, enrolled as a student in a qualifying education program at a post-secondary education institution, and is enrolled throughout at least 3 consecutive weeks in the 12-month period that ends at that time or the total of all EAP does not exceed $5,000

OR

2. The individual has attained the age of 16 and is, at that time, enrolled as a student in a specified educational program at a post-secondary education institution and the total EAP in the 13-week period that ends at that time does not exceed $2,500.

Types of RESP Plans

Non-family plans: These plans can only have one beneficiary. There are no restrictions on who can be a beneficiary under these plans. This means that anyone can be the beneficiary of a non-family plan. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.

Family plans: These plans can have one or more beneficiaries. However, each beneficiary must be connected by blood or adoption to each living subscriber under the plan or have been connected to a deceased original subscriber. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time.

Investment Alternatives

Regular Deposits

Establishing a Registered Education Savings Plan (RESP) and making monthly contributions is the most convenient and tax effective way to ensure you have funds available to help pay for the post-secondary education your children will need to pursue successful careers in their chosen fields. You can set up pre-authorized deposits for as little as $25 monthly or biweekly.

Guaranteed Investment Certificates (GICs)

GICs provide security and guaranteed returns over a 1 to 5 year period, or a combination of terms to provide a staggered investment structure.

Mutual Funds*

When you choose to invest your RESPs in mutual funds, your portfolio can be tailored for growth potential, interest income or a balance between the two. There are no restrictions on foreign content so you can take full advantage of the growth potential of international markets. To find out more about an ECU RESP or to learn more about the benefits of our RESP, please contact a professional at your branch.

Government takes new measures to help low income families save for their children's post secondary education.

The Canada Education Savings Act, passed into law on December 15, 2004, introduces the Canada Learning Bond and enhancements to the Canada Education Savings Grant, designed to help low and middle-income families save for their children’s education.

The purpose of this Act is to encourage families to set up a Registered Education Savings Plan (RESP). The Canada Learning Bond will provide $500 to children born on or after January 1, 2004 in families entitled to the National Child Benefit (NCB) supplement for the child, followed by up to 15 annual $100 entitlements for each year the family is entitled to the NCB supplement for the child. 

The legislation also doubles the Canada Education Savings Grant from 20 to 40 percent on the first $500 of RESP contributions each year for families with a net income of $35,000 or less.   The Act also increases the CESG from 20 to 30 percent on the first $500 of RESP contributions per year for families with a qualifying net income greater than $35,000 but not exceeding $70,000.  While the Canada Learning Bond benefits children born on or after January 1, 2004, all eligible children in low- and middle-income families stand to benefit from the improved CESG match rates effective on January 1, 2005.

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