What is an RESP?

What is a Registered Education Savings Plan (RESP)?

A Registered Education Savings Plan (RESP) is a investment vehicle designed specially to accumulate savings for a child’s post secondary education. The savings accumulated in the RESP are intended to cover the tuition fees plus all education-related expenditures including: housing, school supplies, food, transportation expenses, etc.

As is the case with a registered retirement savings plan (RRSP), the federal government of Canada permits the investment income from an RESP to grow tax sheltered as long as it is not withdrawn from the plan. – Basically, a RESP is to education what the RRSP is to retirement.

Increasing Your Savings Through the Canada Education Savings Grant (CESG)

The Canada Education Savings Grant Program, established by the federal government, aims to encourage parents to invest in the post secondary education of their children.

Effective January 1, 2007, the maximum annual contribution qualifying for the 20% CESG has been increased from $2,000 to $2,500. The maximum CESG per beneficiary, for 2007 and subsequent years has been increased from $400 to $500.  The lifetime CESG maximum is $7,200 per beneficiary.

The grant amounts received accumulate tax sheltered in the RESP. During the beneficiary’s post secondary education, these amounts will be added to income paid in the form of educational assistance payments. The CESG does not affect the allowable contribution limit per beneficiary.

If no contribution is made for a given year or if the contributions paid are lower than the contributions required to obtain the maximum CESG ($500), you may carry forward unused CESG room to subsequent years, as long as the beneficiary is eligible. However, the total annual grant amount paid cannot exceed $1000.