Giving a child access to a post secondary education is something all parents, grandparents, aunts or uncles hope to be able to do. The cost of post secondary education continues to increase over time. Many students are forced to take out loans to pay for their education after high school. According to Statistics Canada, university tuition fees have risen in excess of 135% in the past 15 years.
A parent, grandparent, or other relative can contribute to a Registered Education Savings Plan up to an annual maximum of $2500.00 per child for a cumulative contribution limit of $50,000.00 per child beneficiary. Contributions can be made to the plan for a maximum of 31 years from the effective date of the plan. The RESP must be liquidated no later than 35 years after it is set up.
In 1998, the Federal Government created the “Canada Education Savings Grant” program. This program provides an extra 20% in addition to the annual contributions paid into the plan by the subscriber up to a maximum of $500.00 per year per beneficiary (child). There is a lifetime maximum grant of $7200.00 per child beneficiary. The provinces also have various incentives to encourage families to save even more by supplementing the Federal Grant Program
The proceeds in the RESP grow tax sheltered and the withdrawal payments are taxable and paid to the child when he/she attends post secondary education which includes many trade schools. Students’ incomes are generally modest, the amount of income tax paid on withdrawals from an RESP are relatively low. Proceeds from a RESP can be used to pay tuition, housing, food, school supplies, transportation etc. while attending post secondary school.
If the child decides not to attend a post secondary institution, the money is not lost because it can be transferred to the Subscribers RRSP if there is room. In this instance, the grant money must be returned to the Government, however, the growth and contributions to the RESP can be rolled over to the RRSP of the subscribers, often the parents.
Education is an advantage that counts and is also an excellent investment as more than ever employers seek qualified, highly trained candidates with specialized skills. Two thirds of jobs require a post secondary education. With prudent investing and time the long term rate of growth is in excess of 20% with the grants added, RESP’s make a tremendous holiday or birthday gift for a child, grandchild, niece or nephew. You can help create a substantial education fund for a special child in your life over time.
Susan M. Creasy
Susan Creasy Financial Inc.