Words Deborah Reid, Raymond James Ltd.
It can be overwhelming raising a family with today’s cost of living; however, setting aside funds for your children’s post-secondary education is a gift that keeps on giving!
A Registered Education Savings Plan (RESP) is a federal government plan that provides grants when contributions are made. Anyone can contribute to a child’s RESP if they have the subscriber’s permission and stay within the allowable contribution limit of $50,000.
The federal grant, the Canada Education Savings Grant (CESG), depends on the contribution. The government pays 20% of the contribution to a maximum of $500 per year per child; therefore, a $2,500 annual contribution provides a $500 grant per year with a maximum lifetime allowable grant of $7,200 that ends when a child turns 17. If the maximum CESG is not received in one year, the annuitant can catch up in the following years.
It is best to open a “Family RESP” since children can be added to the Plan throughout the years. Educational funding will depend on career choice, educational institution and number of years attending a facility. Having one RESP allows flexibility of distribution, simplifies management, accounting and withdrawals.
In addition to the CESG, when a child living in B.C. turns six they are eligible for an additional savings grant of $1,200 provided by the Province of B.C. The financial institution holding the RESP will submit the form after the sixth birthday, but before the ninth, on behalf of the beneficiary (refer to BCTESG).
The third available educational funding is the Canada Learning Bond (CLB). This program is offered to low-income families with children born after January 1, 2004. The criteria is based on the number of children and net family income below the current threshold of $55,867. This eligibility amount is recalculated annually. To apply for the CLB, you must have an RESP open, but it is not required to make an RESP contribution. Eligible children can receive an initial payment of $500 plus $100 for each eligible year up to age 15, to a maximum lifetime grant of $2,000. The CLB may be applied for retroactively. It is important to know that a beneficiary can request their own CLB entitlements from the day they turn 18 years old until the day before they turn 21 years old.
The key to growing a healthy RESP is to start early, maximize government grants, stay committed, and make monthly contributions to take advantage of dollar-cost-averaging.
Deborah.Reid@raymondjames.ca.
