Saving with RESPs

Education costs are continuing to increase every year. Many studies predict the cost of a four-year university undergraduate degree could be upwards of $100,000 after all expenses in the near future. Many postgraduate programs already cost more. Today, the majority of employment requires some form of post-secondary education or specialized training.

The good news is that with an Registered Education Savings Plan, the government wants to give you money to make it easier for students to attain a post-secondary education without going into massive debt.

What is a Registered Education Savings Plan (RESP)?

A Registered Education Savings Plan (RESP) is an easy way to save money for post-secondary education. RESPs help you by collecting money through government grants and accumulating all earnings (capital gains, dividends, and interest) on your investments — tax-free.

How do RESPs work?

One of the best things about an RESP is that for children 17 and under, the government provides grants to top up your RESP contributions. When you open a Registered Education Savings Plan, you can choose to put the money into a variety of investments, including:

• Stocks*
• Bonds*
• Exchange-traded products*
• Mutual funds*
• Guaranteed investment certificates (Please Note: New RESP GIC accounts will no longer be available starting May 1, 2022)

A Libro Coach is always available to provide you with advice to build an effective RESP. We help you choose the right investments and review your plan with you on a regular basis to ensure it remains in line with your goals, time horizon, and risk tolerance. There are two main government grants:

RESP Grants

Grants are available from the Government of Canada for those who invest in RESPs — specifically, the Canada Education Savings Grant. By investing in an RESP, you are automatically eligible for this grant — RESP providers like Libro apply for the grant on your behalf.

Canada Education Savings Grant

The government gives you $500 (or 20%) for every $2,500 you contribute per year per child. Contribute the maximum for 10 years and that means you get $5,000 free money plus the interest.

• Based on your net family income, you may be eligible for an additional 20% on the first $500 of annual RESP contributions.
• To save $2,500 per year, you need to budget just over $200 per month. Your Coach will help. Even if you don’t hit the maximum number, the free money still adds up.
• The lifetime maximum you can receive is $7,200.

Canada Learning Bond

In addition to a Canada Education Savings Grant, caregivers for children born on or after January 1, 2004 may apply for the Canada Learning Bond on behalf of their child. This bond is for families who are eligible to receive the National Child Benefit. This income-based granting program takes into account the number of children in a family and the primary caregiver’s income to determine eligibility. After opening an RESP, Libro can help you determine your eligibility for the Canada Learning Bond and help you apply.

• The Canada Learning Bond does not affect other benefits.
• A child can get the Canada Learning Bond in an RESP even if you don’t contribute any money to the plan.
• The maximum available amount for this bond is $2,000. This includes $500 for the first year of eligibility and $100 for each year they remain eligible, until the calendar year that they turn 15.
• An RESP is tax-deferred, not tax-deductible.
• The beneficiary must be a Canadian resident.
• The maximum lifetime RESP contribution per beneficiary is $50,000.
• Annual RESP contribution deadline is December 31.
• Visit www.serviceCanada.ca for more details on all the available government RESP grants.

RESP Withdrawals

RESP withdrawals help students pay for expenses like their tuition, textbooks, rent, and travel to home. When withdrawing funds from your RESP, always contact your Libro Coach to know how much should be withdrawn from the account. There are two types of withdrawals you or students can make from an RESP account when they are enrolled in an eligible post-secondary education program.

Educational Assistance Payments (EAPs)

Students can start receiving educational assistance payments (EAPs) from the non-contribution portion of their RESP account. Only $5,000 of the non-contribution portion of the RESP can be withdrawn in the first 13 weeks of school. After this, there’s no limit. Upon withdrawal through EAP payments, the government grants and investment earnings from the RESP are considered taxable income, and the funds will be taxed at the student’s income tax bracket. However, since students usually receive tax credits and have a lower income, often students will pay little to no tax on their RESP income.

Post-Secondary Education Payments (PSEs)

These payments are taken from the contribution portion of the RESP. Post-Secondary Education Payments (PSEs) are not taxable, and there are no limitations on the amount that can be withdrawn once the student is attending post-secondary education.

If the individual doesn’t pursue post-secondary education after high school, but changes their mind down the road, their RESP can stay open for up to 36 years. Parents who want to withdraw from their child’s RESP when they are not enrolled have two options:

• They may transfer the RESP funds to their own RRSP. In this case, the government grant contributions would be returned.
• They may withdraw their contributions tax-free. However, government grant contributions will be returned and they will pay taxes on any investment earnings.