RESPs

A RESP is a government approved investment plan for the purpose of providing post-secondary education funding to a child beneficiary, while allowing access to the principal. Your contributions to an RESP are not tax-deductible like they are in an RRSP, but the income earned is tax-free until it is withdrawn. A RESP provides a method for income splitting as Education Assistance Payments are taxable to the beneficiary and not the subscriber.

When investing in a RESP, you are entitled to receive a Canada Education Savings Grant, which is paid to the plan based on 20% of the first $2,000 annual contribution made to a plan on behalf of each beneficiary. The maximum annual grant per child is $400. You can withdraw the principal without paying taxes, however you may have to repay CESGs.

A contribution of up to $4,000 per beneficiary may be invested to a lifetime maximum of $42,000 per child. However, the maximum amount under a CESG that may be awarded for each child is $7,200 for the duration of the plan. The beneficiary must have a social insurance number. Parents, grandparents or anyone wishing to establish an education fund for a child may contribute to a RESP.