Mike of Four Pillars blog commented that the RESP information on the Government of Canada website that I referred to in yesterday’s post has not been updated with RESP changes introduced in the 2007 Federal Budget. As the RESP rules are confusing and widely misinterpreted at the best of times, I hope to provide comprehensive information in this post. You can also refer to Mike’s recent post for examples.

Contribution Rules

Unlike RRSPs, contributions to a RESP are not tax deductible. You can contribute a maximum of $50,000. The investment returns within a RESP are not taxed until money in withdrawn from the plan. There is no annual contribution limit. You can contribute the entire $50,000 lifetime maximum in one year, though the matching Canada Education Savings Grant (CESG) has an annual limit.

Canada Education Savings Grant (CESG)

  1. The Government of Canada matches 20% of your contributions by paying the CES grant directly into your RESP account, irrespective of your household income. In prior years, the maximum CESG was $400 per child for every annual contribution. In the 2007 federal budget, the limit was increased to $500 for 2007 and later years.
  2. Unused grants accumulate and will be paid for future contributions. Prior to 2007, the maximum CESG per year was $800, provided you have unused grants. In 2007 and later years, the maximum CESG per year is $1,000.
  3. The lifetime maximum CES grant that a child can receive is $7,200.
  4. Lower income families are eligible to receive slightly higher CESG and may also be eligible for the Canada Learning Bond.

Withdrawal Rules

You can start withdrawing from a RESP when your child starts full or part-time studies in a qualifying education program. Since contributions made to the RESP plan were taxed already, they are not taxed on withdrawal. Grants paid by the Government into the plan and the growth of the funds within the plan is taxed at the hands of the beneficiary. Special rules apply when a child does not attend post-secondary education.

Family Plans

While an individual RESP account can be set up by anyone, only a family member can set up and contribute to a family RESP. The family plan is identical to individual plans except that more than one child can be the beneficiary of the plan. There is some confusion on how family RESP plans are set up (see the comments section in yesterday’s post).

Group RESPs

Group plans or pooled RESPs are available from a number of vendors. In my opinion, a self-directed RESP is vastly superior and flexible compared to these plans.

This article has 48 comments

  1. Thanks for the link!

    Great summary – this is a tough subject to do in one post.

    Mike

  2. Canadian Capitalist

    Mike: The RESP rules are so numerous that it is difficult to keep track of them. And they tweak it all the time in the budget. My bet it within a year or two, the current rules will be tinkered with once again!

  3. One thing to note about the $50,000 “lifetime limit” – this limit is per-child, not per-RESP. You can have a family RESP with four beneficiaries, and the contribution limit would be $200,000 total. The maximum grant money that any one child could receive would be $7,200.

    CC’s definitely right, though – the rules do change over time.

  4. Canadian Capitalist

    George: Good point. I’ll add the per child caveat to the post.

  5. You should note that An RESP has to be terminated on or before the last day of the 25th year after the year in which the plan was entered into. This is important for family plans. If you open a family plan when your first born child is born you may end up having to collapse the plan before subsequent younger siblings are finished or even have started there post secondary education. This is one reason, depending on the age gap, to consider opening a new plan for each child.

  6. Canadian Capitalist

    Rob: Thanks for pointing out that RESP plans have a time limit. It would mean that it is best to open one family RESP plan for each child separately.

  7. Pingback: The Big RESP Series

  8. RESP can be set up only if the children have SIN numbers. New comers to Canada, on work permit-like myself – will have to wait till we have PR !minimum of 2years) befor the kids can benefit from this scheme.

    P.S we still pay our taxes during this time.

  9. As it should be, you must earn the privileges of living in the best country on the planet.

  10. Can someone tell me how the CESG grant is paid, technically. How is the money actually put into the account, and how does the gov’t know when/if it is deposited? I am assuming it is done when you claim it on your taxes for that year, or is it just done automatically some other way?

  11. In my e-fund account with TD the CESG is just deposited (according to my direction) slightly after any regular deposit. For example, I have a pre-authed payment plan with them to deposit $105 per month on the first of each month. Usually I see another deposit directly after that (sometimes on the same day, or a day or two away) of $21.00. After that point it’s just like any of the other funds and can be moved around at will as long as it’s not withdrawn from the RESP.

  12. Canadian Capitalist

    MG: As far as I can tell, the CESG grant is deposited automatically into the RESP account at the end of the next month that a lump-sum contribution is made. I am guessing the RESP administrator has a mechanism through which they let HDRC know a contribution has been made and gets the grant deposited for you. For example, if I make a contribution on Feb 20th, I usually notice the CESG grant on March 31st.

  13. I have a 16 year old son who will turn 17 in 2008 and have missed many contribution years about 8. For the CESG limit of 800 per year(1000 in 2007 onwards) What is the last contribution year for which I can have a previous year catchup. Is it his 18th year or 21rst year before his Bday. without catchup At what age do the CESG normally stop? 17 or 18?
    Please help

  14. The government somehow keeps track of the unused CESG grants for every SIN. My wife’s parents have contributed to an RESP for our children until now. But their records are incomplete and they can’t tell me when they made contributions and for which child. Where can I find out what the unused CESG grants are so that I can catch up properly?

  15. Mylon, Andy: The HRSDC administers the CESG portion of the RESP and so I’d expect they should be able to answer both your questions directly. If not, I’ve found them to be quite friendly and helpful so they’ll surely point you in the right direction. The number is 1-888-276-3624.

  16. I have a question about the Family RESP accounts at TD. I opened a couple (?) of them a few weeks ago with the intention of turning them into eFund accounts. I have 2 kids, and I thought that I would only require 1 family account that has both the kids’ on it. Is this how the family accounts are supposed to be set up? One for each child that either can draw on? It just seems weird to me if this is how the family accounts work.

  17. DigiGrl, though the family account is designed so that each child will be able to withdraw amounts from it, it’s probably easier later just to have one account for each child, and especially so if they are more than a few years apart in age.

    Now that the budget is proposing increasing the limit on how many years you can have the RESP open to 35 rather than 25 it’s not as much of an issue, but I still think it will make it more fair to each child if they each have a plan. It would be really hard to withdraw money for one child and ensure that the other child has the same or similar amount available a few years later. With two plans it’s easy, one student withdraws one, the other student withdraws the other; No complicated math involved.

  18. DigiGrl: Even under the family plan (I’m with TD Asset Management also as e-Series funds), each child has a separate account within the same RESP plan. I believe this is standard and may be mandated by the CRA (not sure though). Anyway, it gives you the best of both worlds really as it addresses Traciatim’s “fairness” concern, but allows you to transfer any amount between the accounts without problems should that be necessary later… say when one child goes to college while the other studies to be a doctor. :)

  19. 1. Is my child eligible to withdraw when attending uni part- time, and working?
    2. Do recent changes mean that he can withdraw past age 25, if account opened at age 10?
    thanks

  20. Canadian Capitalist

    romney:

    1. Check out the FAQ page on the HRDC website:

    http://www.hrsdc.gc.ca/en/hip/lld/cesg/publicsection/CESP/RESP_FAQs.shtml#q19

    2. I think so, yes.

  21. Can someone help me here? I have a friend who opened up an RESP, here in Ontario, for his daughter about 5 years ago. The daughter is now 18 years old and will be attending the University of British Columbia this September.

    My friend moved down to California 3 years ago for work and he and his daughter and now both US residents. He still kept the RESP plan here in Ontario. He has recently attempted to redeem his RESP money however he is running into problems. Apparently the grant portion has to be returned to the Government of Canada. He is getting a few different reasons:

    1) The subscriber (the father)’s mailing address is in the States, that’s why his daughter is not eligible for the grant money.
    2) At the time of enrollment (May 2008), the daugther was living in the States (attending her last year of High School), and because she wasn’t residing in Canada at that time, the grant money is being denied.

    Question: Which one is it, and is there written documentation on the internet? If the second one is true, if the daughter is physically living on campus at UBC (ie. she would be residing in Canada) at the time of her enrollment of her second year (ie. she would be enrolling for her second year while she is on campus at the end of her first year, and still in Canada), would she qualify for the grant money then? So, maybe it’s best not to redeem the RESP money until right before her second year of school?

    A response ASAP would be greatly appreciated.
    Robert

  22. Canadian Capitalist

    Robert: Call HRDC and/or the RESP promoter. It’s hard to say what the problem is. The CES Grants are only for Canadian residents, so if your friend had made contributions in the last 3 years, that could be a problem. Also, check the HRDC page for tons of information on RESP rules:

    http://www.hrsdc.gc.ca/en/learning/education_savings/index.shtml

  23. Pingback: Quick Tip: Catch up on RESP Contributions

  24. Albertans need to ensure that their RESP provider is able to get them the Centennial Savings grant of $500/child. In this regard, avoid Scotia iTrade (formerly eTrade) as it has made it clear to me that I’m out of luck with the RESP I have with it.

  25. Just wondering why TD Waterhouse self directed RESP plans terminates after 25 years, although BMO and Scotia plans terminate after 35 years according to the information I found online?

    I currently have 1 newborn girl and am concerned if I open a single family plan with TDW and add a second child later on, the plan will terminate prematurely. I like the idea of a single family plan for flexibilty and to reduce the yearly administration cost of $50 until I reach 25k.

  26. If my daughter doesn’t attend a Canadian post secondary institution does this affect her ability to access funds in her RESP account? If she decides not to pursue post secondary education can my daughter still access the money in her RESP account? Are there limits on how much she can withdraw at any given time?

  27. money was put away for my 4 children, some from me (mom) and some from grandma before she died last year. My 16 year old now wants to attend a school trip out of country that is financially beyond our reach. our investment broker refuses to give us some of our resp money for her trip. also my husband left and involved children’s services. since my daughter is 16 and the courts are not giving her any life choices, she would also like to hire a civil lawyer to sue children’s services. again the broker denies her money to pay a legal retainer. is this legal and how can we get our money back. These issues are way more serious and we have need of this money now. My daughter is prepared to go to post secondary school and get scholarships. How can we fight this. we are in trouble and i have lost my job. we have no other family and we can not find help anywhere, even after searching for 8 months. we need our money back, what do we do?????

  28. Hi Vicky: I recommend you contact the Securities commission in your province to see what can be done. I have never heard of an investment broker refusing to refund your money, unless he has invested it in high risk investment and has lost some of principle. Check you latest statement to see where you stand. Good luck, and let us know how things turn out.

  29. Sounds like a scam. If one submits $50,000.00, what is the maximum the Candian goverment will add to the fund?

  30. actually i have 3 kids and we have family plan , till now i cant understand RESP every time we visit the bank (CIBC) we learn some thing new , some times the bank employees themselves dont know , its really confusing, a friend of mine told me its better for the kids to get loan from university in the future , ireally dont know what to do and which is better

  31. hello I just have new baby in my family and i was talking to this agent who told me that their company has a special offer going on right now. he told me any money i will put towards the resp for my child i will get 15% extra from his company every year. this is over and above the government fund my child will receive. this sounds so good to be true. Any one has any idea about this. Thanks

  32. I’m with you, this sounds to good to be true!!! Before opening a plan with this company, check out their prospectus to verify whether these facts are true. SOME reps have a reputation for exagerating the true facts. Call the security commission in your province as well. No one can guarantee a return of 15% for a period of 17 years. He might be referring to the bonified grants, but all companies offer this bonification which is based on your family income.

  33. Does someone know if the approved education course have to be in Canada?

    Or can the student take a course / program anywhere in the world?

    Thanks

    Toby

  34. If your kids decide not to persue post secondary education is the money transferable to a RRSP?

    Thanx Ken

  35. Does anyone know how i can get my son’s r.e.s.p documents from his aunt she is refusing to give it to him and he needs it for disability

  36. in canada, one must have a sin card to open an resp. if the resp is in the parents name they would get statements to determine the current balance. one could also sign a form for disability for them to obtain the information. one other route of knowing is throught the frredon of information act website where one can ask for particulars if the information pertains to government offices, applications, etc. if you know the institution, send disability the info and let them pursue the institution or person who is responsible for it. most govt entities are not so connected but one may fill out forms so this could happen for this child. there are a few ways but a direct approach with another investor may open a different channel of information passing. check with an investment company and a bank, however make disability know someone else set this up and remains in control of it so if you give your permission for communication to occur, this might happen faster! good luck. control freaks are the worst to work with.

  37. I want to open an RESP for each of my grandchildren, of various ages. Due to my age, I am not likely to be around when some of them make use of this. Should I let my child have the money to open these accounts? If I give each of them $10,000, how much will the grant be each year. I also have 1 that is now 19, and is taking a yr. off college to earn some money. Is that grandchild too old for me to contribute.
    If so what suggestions do you have for that one as I want to give each child the same opportunity.

  38. I am a 17-year-old who is going to be attending the university of Windsor next year. My question is while RESP’s are for education only, would I be able to get certain supplies I need for school with that money? For example, a laptop? Or is my RESP usable for tuition only?

  39. Not too sure if I’m right at this point (I will verify), but there seems to be one more substantial difference between Individual and Family plan. In Family plan money used within a year, lesser grand and interests, may be transferred by beneficiary to a relative (parent/grandparent) with higher income. In the Individual plan this can not be done. Again – not 100% certain, did not check yet.

  40. can there be more than one resp for the same child? For example, one set up by the parents and one set up by the grandparents.

  41. Can a contributor,s contributions only be returned to him or her without tax at anytime . I tried to get my contributions only returned and the broker said tax would be withheld ? which would be the case for RRSP .

    • Canadian Capitalist

      @Bruce: The answer is yes. RESP contributions were made with after-tax dollars, so principal withdrawals are not taxed again.

  42. i have a question, i am doing a bunch of courses for first aid n such n have alot of online courses i need to complete am i able to use some of my resp to buy a laptop?! somebody please help me out with this question!!!!!

Leave a comment

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>