More and more Canadians are opening registered educations savings plans (RESPs) to help save for their kids’ post-secondary education.* And many parents have questions about this highly appealing savings vehicle. Maybe you do too?
Angela Iermieri, Financial Planner, sets the record straight and answers your 11 most frequently asked questions about RESPs.
1. Do I need to invest a specific amount in an RESP?
No, there’s no specific dollar amount required to open or maintain an individual (one beneficiary) or family (2 or more beneficiaries) plan. However, some RESP investment options, like guaranteed investment certificates or mutual funds, may require minimum deposits.
2. Do I need to make regular contributions? What happens if I need to skip a contribution? Can I change how much I’m contributing?
You get to decide how much and how often you contribute. You can set up automatic transfers to the RESP, or you can simply make contributions whenever you have money to do so. For both individual and family RESPs, you can adjust the contributions at your own discretion as long as you don’t go over the lifetime contribution limit of $50,000 per beneficiary.
3. What are my investment options?
There are plenty of investment options to choose from at Desjardins, like Desjardins Funds and guaranteed fixed-rate investments. When you open an RESP, an advisor will help you choose your investments by determining your investor profile, which is based on your needs, investment horizon and risk tolerance.
4. How can I keep track of my investment?
As a subscriber, you’ll receive quarterly and annual statements. You can also keep an eye on how much you’re saving online, at your convenience. You can see current information about your contributions, government grants added to the RESP and the return on your investment.
5. How do I apply for RESP grants?
Your RESP provider, such as your caisse, applies for the grant on your behalf. The Canada Education Savings Grant (CESG) is based on your contributions and is deposited monthly into the account. Quebec residents are also eligible for the Québec education savings incentive (QESI), which is deposited yearly.
6. Can I make withdrawals from an RESP? Are there any withdrawal fees or penalties?
When a subscriber contributes to an RESP, that money is still theirs and can be withdrawn at any time before the plan ends. However, you may have to return the CESG or QESI if the withdrawal is made before the student is enrolled at a post-secondary institution.
7. How many years can an RESP stay open?
Beneficiaries are only eligible to receive grants up until they turn 18. However, subscribers can contribute to an RESP until the 31st year after they opened the plan, provided they stay within the contribution limits. RESP funds must be used by the end of the 35th year. For example, if you open a plan in 2020, you can contribute to it until the end of 2051, and the funds must be used by the end of 2055. So, if the student decides to take a gap year before going to college or university, there's no need to immediately close the account.
8. Are there any restrictions on the types of educational programs that are eligible for RESPs?
To qualify for EAPs from an RESP, students must attend:
- A college, university or other educational institution in Canada that offers post-secondary courses that are eligible for student financial assistance (student loan and bursary programs)
- An educational institution in Canada certified by the Minister of Employment and Social Development Canada as an institution offering courses to develop or improve a person’s skills in an occupation
- A college or other institution outside Canada that offers post-secondary courses, and at which the beneficiary is enrolled in a program that lasts at least 13 consecutive weeks
See the Government of Canada’s full list of certified educational institutions
9. Can the beneficiary enrol in part-time studies?
Yes, but only if they’re enrolled in an educational program that lasts at least 13 consecutive weeks and requires students to spend no less than 12 hours per month on courses.
10. What happens to my RESP contributions if my child decides not to pursue post-secondary studies?
You can choose another beneficiary. Siblings can keep the grants, provided certain rules are followed. If you can’t choose a new beneficiary, the grants will be returned to the government and your contributions will be returned to you. As the subscriber, you can transfer up to $50,000 of accumulated investment income to your RRSP if you have enough contribution room, or you can withdraw the money. If you decide to withdraw it, you'll have to include it as part of your taxable income for the year and pay an additional 20% tax.
11. Will the student be taxed on the amounts withdrawn from the RESP?
When money is withdrawn, the amount you contributed as the subscriber still belongs to you and is not taxable. The money that gets paid out to the student, known as educational assistance payments (EAPs), consists of grants and earnings on the investment. EAPs are considered part of the student's taxable income, but since their income tends to be low, they generally end up paying little to no income tax.