Registered Education Saving Plan (RESP)
A Registered Education Savings Plan is essentially a tax-deferral savings plan that you open on behalf of a future post-secondary student. While RESP contributions are not tax deductible, the income earned on contributions compounds on a tax-deferred basis. You may contribute up to $4,000 per year per beneficiary and RESP contributions may be made for up to 21 years ” to a lifetime maximum of $42,000 per beneficiary. (Plus, the federal government will pay you an incentive on a portion of your RESP contributions ” see Canada Education Savings Grant below.) An RESP terminates when all the funds have been withdrawn or 25 years after the plan was opened, whichever comes first.
You may withdraw your RESP contributions at any time, with no tax consequences ” only the accumulated income in the plan is taxable. When money is eventually withdrawn from an RESP to pay for education-related costs, the income is taxed in the hands of the beneficiary (the student), not the contributor. If the student withdraws the money over a few years, the income should attract little or no tax.
Subject to certain conditions, if the beneficiary does not pursue post-secondary studies, up to $50,000 of RESP income may be transferred to the contributor's RRSP, as long as there is available contribution room. If there is more RESP income than RRSP contribution room, the excess income may be added to the taxable income of the contributor and, in addition to the tax that would normally be paid, a 20 per cent penalty tax would be charged.
STRATEGIES: EDUCATION INVESTMENT OPTIONS
Today, the estimated cost of college/university is approximately $4,000 a year for a student living at home and $10,000 a year for a student living away from home. These figures include tuition fees, books, and for students living away from home, room and board. In 18 years, these figures are expected to rise to $37