A Registered Education Savings Plan (RESP) is a regulated account designed to help you save for your child’s education. An individual RESP account can be opened in the child’s name who will later use the funds for college or university tuition, books and living expenses. The lifetime limit that can be contributed to an RESP account for a beneficiary is $50.000. The Canada Education Savings Grant (CESG) will match 20% of what you contribute to the account to a maximum of $500 per year and $7200 over the lifetime of that account. The Government grants must be repaid back to the Government.
Once the Child enrols in a post-secondary institution, she or he will only owe tax to the earnings and government grants. The funds made by the contributor will not be subject to tax. The funds in the RESP account are ONLY transferable to a sibling. If the child decides to not enrolled in a post-secondary education, the funds from the RESP account can be transferred to a sibling or in the absence of a sibling the money can be transferred to the contributor’s RRSP account, tax-free. If the RESP account is closed the funds in the account that were deposited by the contributor can be withdrawn without penalties. The gains earned inside the account are a subject to tax.
With the Canadian Education Savings Grant (CESG), the government may add to your RESP contributions up to a maximum of $500 per year, per child. The CESG is payable until the end of the calendar year in which a child turns 17 and the maximum lifetime CESG payment is $7,200.
You can decide how much money should be withdrawn in your RESP. You ca use the money you withdraw for your child’s education costs such as tuition, books, and living expenses.
Although contributions to your RESP are not tax-deductible, all investment income generated is tax-sheltered as long as it remains in the plan.
When you withdraw from your RESP to pay for your child’s post-secondary education, the plan earnings and contributions are taxed in the child’s hands. (As a student, the child may pay little or no taxes on the money).
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