How expensive can an education get?
It is common knowledge that education is expensive. In just one year, an undergraduate student attending university and living at home could pay approximately $12,000-$24,000 for tuition, books and supplies, clothing, and transportation. If living away from home, add about $10,000 for accommodation and meals per year, resulting in annual expenses of approximately $22,000-$34,000. Over a four to five year period, that is a whopping $88,000-$170,000. It is important to begin saving for your child's education as early as possible.

An RESP is used to save for educational planning, and offers tax deferral and income splitting with the beneficiary of the plan. You can invest in the same types of investments allowed in an RRSP.

How much CESG is available as a free grant?
The federal government's CESG can help you finance your child's education. The maximum annual CESG amount is $500 per year, up from $400. This government grant is based on 20% of your contribution to an RESP (only on the first $2,500 per year). As of 2007, the annual contribution cap of $4,000 per year was eliminated.

Note: The CESG may be higher for lower income groups. Talk to your tax specialist.

How much can you contribute?
You can contribute up to $50,000 per beneficiary until he or she reaches the age of 21. Any overcontribution that remains in the plan is taxed at a rate of 1% per month.

You can contribute to the plan for 21 years, or 25 years if the beneficiary has a disability. Income can be generated tax free in the plan for another four years, after which it must conclude.

The Canada Education Savings Grant (CESG)
The federal government provides a direct grant to the RESP at 20% of the initial $2,500 of annual contributions made to the RESP per year. There are enhanced rates for those earning less income. The grant is worth up to $500 per annum for each year the beneficiary is under the age of 18, to a maximum of $7,200 per beneficiary.

The CESG total per year is capped at the lesser of $1,000, or 20% of the unused portion of the maximum $7,200 total grant. If the maximum contribution allowed is not used in a given year, it can be carried forward to use in a later year (with possible restrictions).

How much can you contribute annually to your RESP?
You can make a large lump-sum payment to an RESP to take full advantage of the tax-sheltered growth allowed within the plan. Though there is a tax savings on the sheltered growth, you may lose the CESG if you do not make an annual contribution because the CESG is calculated annually when your taxes are done.

Withdrawing income
You can withdraw your own contributions to an RESP without any taxation, because you will not get a tax deduction (as with an RRSP) at the time of contributing. You can't withdraw the earned income tax-free on the investment and may need to repay part or all of the CESG if the withdrawal is for non-educational expenses.

Single and multi-beneficiary plan
You can choose between single- and multiple-beneficiary plans. In the single plan, the beneficiary can be you or anyone else. The beneficiary does not have to be related to you.

If saving for the education of more than one person, consider the multi-beneficiary or family plan, which can include children, brothers, sisters, grandchildren, or great-grandchildren.

Qualifying for an RESP and the CESG

The RESP beneficiary must:
• be a resident of Canada under the age of 18;
• have a Social Insurance Number (SIN), which you can apply for at Service Canada;
• have received contributions to his or her RESP of at least $2,000 before the year the child turned 16, or have received a minimum of $100 in annual RESP contributions in any four years prior to turning 16, in order to qualify for the CESG.

If not pursuing post-secondary education, the principal amount of the CESG received will need to be paid back, not the earnings on principal.

Payments from the RESP
If the beneficiary pursues a post-secondary education on a part-time basis, students aged 16 and older are eligible to receive up to $2,500 for each 13-week semester; full-time students can receive $5,000 (or more if pre-approved by Human Resources and Social Development Canada) for the first 13 weeks of his or her post-secondary education. There is no limit thereafter, as long as the student qualifies for expenses such as tuition, books, and living expenses and is enrolled in a qualifying educational program for a 12-month period.

If post-secondary education is not pursued
You may transfer up to $50,000 of RESP income to your (or your spouse's) RRSP during your lifetime, up to your RRSP's available contribution room. Thus, your RRSP deduction offsets the inclusion of the RESP funds in your taxable income. Further, you must conclude the RESP by March 1 of the year following the year you first withdrew RESP income.

Ask your advisor for more information on the RESP advantages as you plan for your children's education.