I was inspired to write this post because apparently some idiot at the bank told my parents they cannot open one for their granddaughter (my niece). Seriously, that person has no business running a bank if she doesn’t know some basic information like who can open one!
What is an RESP?
An RESP stands for Registered Education Savings Plans.
Who can open one?
Anybody. Yup. Anybody. But it has to be opened for someone under the age of 17.
What is it?
It’s a great way to save for a child’s education. The best thing about it is that the government will actually give you some free money when you put money into it.
No way – the government wants to give me money?
Yup. It’s called a Canada Education Savings Grant. It can provide an additional $200 on the first $500 you save annually, and up to $400 on the next $2,000 saved.
The maximum lifetime grant that the Government of Canada will give to a child is $7,200.
Even if you can’t afford to put anything in at all – the child may be eligible for a $500 Canadian Learning Bond.
Okay, what about taxes?
You aren’t charged on the interest earned in the RESP, and because the beneficiary should be in a low tax bracket when they withdraw the money, they likely won’t have to either.
Can I deduct what I contribute from my income tax, like I do for an RRSP contribution?
Nope. Sorry. That’s a no-go.
And what if the kid doesn’t go to any kind of “higher education”?
Depending on the type of plan you choose, it can stay open and be used for the child’s sibling. If you wait long enough, the RESP can be closed and the money returned to you. Or, you can transfer the money to your RRSP. If you think this is a real possibility, make sure your clear on what your options are before you open the RESP.
What’s the lifetime maximum that can be contributed?
Have you opened an RESP? Would you?