Why RESP is Essential?

Registered Education Saving Plan (RESP) is one of the saving plans offered by the Canadian government to promote saving for a child’s education or higher education. The account can be opened by the child’s father, mother, or any relative so that an education loan can be avoided in the future. To motivate Canadians for RESP Canadian government also contribute or deposits some amount for a child’s education in this account.

Pros and Cons of RESP

Some of the key benefits of this account are:-

  • RESP is a registered account with the Canadian Revenue Agency.
  • Any Canadian resident can open it.
  • Parents or relatives i.e., anyone can open RESP with the motive of a child’s education.
  • Better returns than normal saving account.
  • Maturity amount is tax-free i.e., RESP is a tax-advantaged account.
  • Maximum grant from the Canadian government is up to $7200 for students who are under age 18.
  • Apart from using the RESP amount on a child’s education, it can be spent on expenses related to post-secondary education.
  • There is a limit to a maximum amount that you can contribute to in a RESP account till it matures and that is $50,000.
  • There is no annual maximum limit.
  • It is not necessary that the RESP beneficiary i.e. the child has to be related by blood with the account holder.

There are some limitations that you need to remember before opening RESP accounts and they are

  • The government can take back the grant money if the RESP amount doesn’t spend on a child’s education within 36 years from the opening of the account.
  • The RESP amount which is not spent on education-related expenses can come with a penalty of 20% of the remaining amount.

Types of RESP Account

There are 3 different types of RESP account that can be opened. You can select what suits your need better.

Individual RESP

  • Single account holder.
  • Only one child could be beneficiary.
  • Having blood relations with the child is not mandatory.

Family RESP

  • One or more than one child can be beneficiary.
  • Single account holder.
  • Children belong to the same family.
  • Children must have blood relations with the account holder.

Group RESP

  • Can be opened individually or with a group of individuals.
  • Only one child could be beneficiary.
  • Having blood relations with the child is not mandatory.

Either the federal government or provincial government is responsible for the grant amount depending upon the type of grant. The grant will be according to your annual contribution. Your contribution along with the grant amount will give a significant boost to savings in RESP. You have to qualify income-related eligibility criteria for that.

Types of Grants that RESP Account Can Avail Are

  1. 1. Canada Education Saving Grant (CESG) :- It is Grant given by Federal Government.
  • Maximum Grant: – 20% of the amount deposited or $500 annually whichever is lower.
  • Maximum grant limit of $7200 per child.
  1. 2. Quebec Education Savings Incentive (QESI) :- This grant is given by the provincial government.
  • Only Quebec families are eligible.
  • Maximum Grant: 10% of the amount deposited or $250 per child annually.
  • The maximum grant throughout the RESP tenure can be $3600.
  1. 3. British Columbia Training and Education Savings Grant (BCTESG) :-
  • A one-time grant, given by the provincial government.
  • Offers a one-time payment of $1200.
  • Only for British Columbia families.
  1. 4. Canada Learning Bond (CLB) :-
  • Only for families with lower income.
  • First Year Grant is $500 (Maximum).
  • Total Grant is $2000 (Maximum).
  • Only given till the child is of age 15.

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