Registered Education Savings Plan ("RESP")
An RESP allows you to make contributions to a tax-deferred savings plan, much like an RRSP, for education saving for your children. The difference is the government provides grants to the extent you make contributions, which is basically free money! The grant is based on your contribution and family income. A higher grant is available for families with lower income. All your contributions and the government grants grow tax-free until the day your child needs the funds for education. When your child uses the funds, your child pays tax (not you) on the income earned and grant income that is withdrawn. The original capital contributed comes out tax-free. The benefit of taxing the income and grants in the child's hands is they probably won't have any tax to pay on this, the assumption being they shouldn't have a lot of income being a student, plus they'll have tuition tax credits available.
Summarized below are a few examples of how much money you can accumulate in these plans with a small amount of money each month on the assumption you start as soon as your child is born. There are all sorts of calculators online to help you determine your future accumulation of funds based on your situation and how much you can save, so please take the time to check it out, and work with your accountant / financial advisor to see what you can afford. Your kids' will thank you for it, and what a great way to encourage your child to move out from under your roof when they turn 18!
Can't afford anything? There is still free money available!
BC Training and Education Savings Grant
For children born after 2006, even if you can't afford
anything, by simply opening an RESP for your child before they turn
7 years old, the BC government will contribute $1,200 into your
child's RESP account!
Canada Learning Bond
For families that are entitled to the National Child Benefit Supplement (aka "family allowance" or "baby bonus") which gets paid with your Child Tax Benefit monthly payments, all you have to do is open an RESP and for children born after 2003 you are entitled to $500 immediately, plus $100 for each year you are entitled to the NCBS up to age 15, plus $25 to cover the cost of opening an RESP. That's $2,025 free!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
