6 RESP Rules and Contribution Limits You Need to Know AboutJanuary 14, 2019
Heritage education funds RESP stands for Registered Education Savings Plan. Its main features are flexibility, tax-deferments, and direct government assistance. It is a savings plan tailored to help you reach your child’s post-secondary education goals. It is important to understand the rules and contributions limits that exist to save you from unnecessary inconvenience. Below are six of these you need to know.
A beneficiary of an RESP must be a legal resident of Canada. You will need a Social Insurance Number obtainable from Service Canada Centre. There is no restriction on the relationship you have with the RESP beneficiary. It can be your child, a nephew, niece, or any other qualifying child.
2. Contribution Limits
You can contribute any amount to an RESP, provided you do not exceed a limit of $50,000 per beneficiary in your lifetime. The rules allow you to contribute to an RESP for a maximum of 31 years. The plan may remain open for up to 35 years.
3. Grant Limits
The government has limits to grants given under the Canada Education Savings Grant. For every 20% contributed, in the initial $2,500, the government will give an equal amount of up to $500 per child per year. The rules also limit the lifetime maximum contribution by the government per beneficiary to $7,200, up to age 18. In case your contribution per year does not exhaust the maximum grant from the government in a year, the remaining grant is rolled over to the following year.
4. Canada Learning Bond
Children born after December 31, 2003, and are from families of modest means, qualify for a $500 Canada Learning Bond (CLB). Further, they qualify for CLB instalments of $100 per year until age 15, provided they continue to meet stipulated income thresholds during this period. Canada Learning Bond is child-specific; you cannot transfer it to another child. Total maximum payable per child is $2,000.
If a student is enrolled in a qualifying post-secondary institution, the funds in a registered education plan can be given to the student provided there is proof of enrollment. The Education Assistance Payments (EAP) include grants, bonds, and accumulated income. These can be claimed by a student as income on their tax return.
6. What If A Child Does Not Pursue Post-Secondary Education?
In a case where an heritage RESP beneficiary does not pursue post-secondary education, what can you do?
You can transfer the financial benefits received from the government to another child’s registered education savings plan if yours is a family plan. That way, you can pay for another child’s education. However, if yours is an individual plan, you are allowed to name another child as an alternate.
In a case where the beneficiary has reached 21 years and the plan is at least 10 years old, the rules allow you to withdraw your earnings as taxable income. It is also subject to 20% withholding penalty tax. You can avoid the penalty by transferring the funds to a registered education saving plan of another child of your choice.
An RESP is an innovative way to invest in your child’s college education. It eases the financial burden and puts you in line for government support.