As a parent, you only want what’s best for your children. You may have recently started a family and might think it’s too early to think about your child’s college education, but it isn’t. As residents of Canada, your family may be eligible for government grans when you open a Registered Education Savings Plan (RESP).
RESP lets you put away small amount of money on a regular basis. By the time your child enters college/university, they should have considerable savings to get them started on their path to continued academics. They can use that money to pay for tuition costs, room and board, books, and anything else they need.
Like many financial programs, there are a few RESP Canada rules to be aware of. These rules dictate how you can and cannot use your RESP savings. We’ll now explain these rules in-depth.
1. Transferring an RESP
There are a few situations in which you may transfer an RESP.
You may have intended the RESP funds to go to one child, but they may have decided to get a job after high school, join the military, or not attend college. Your second beneficiary however, wants to continue their education. You can transfer this money to the second child to receive the funds instead.
A beneficiary must be between 18 and 21 years old under the RESP program, per RESP Canada rules. An RESP is good for up to 36 years, so there’s no need to make hasty transfer decisions.
2. Withdrawing from an RESP
Once your beneficiary starts college, they will want to withdraw the money in the RESP account. That being said, according to RESP Canada rules, there are limits on how much money you can withdraw initially.
Some of the money in the RESP account is non-contribution money. This is a combination of government grants and your interest from the investments. For 13 weeks, the beneficiary is limited in how much non-contribution money they can receive. The cap is $5,000.
To withdraw non-contribution money, the beneficiary must have provide proof of enrollment. After that 13-week period is up, the beneficiary is not limited to how much money they can withdraw. You may also have contribution money in the RESP account which is your own money that was invested. The beneficiary can take out as much contribution money as they need right away.
3. Taxes on RESP
Beneficiaries have lifetime limits for their RESPs. If you add more money than the limit allows, you may be taxed for it. Provincial Education Savings Program and Canada Education Savings Program contributions are excluded.
If you have surpassed the limit, you or the beneficiary should withdraw the excess sum within a month. Barring that, you will be taxed each month at a rate of one percent. That’s why it’s so important to know all the RESP rules before starting the program.
To learn more about RESP rules, visit Global RESP Corporation. Try out our RESP calculator, a user-friendly tool that will show you how investing in an RESP, combined with government grants like the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) can yield additional returns on investment. You can enjoy peace of mind and know your child will be financially prepared to further their education.