RESP

Question 1

Biggest Benefits of RESP

Answer 1

-Registered account, money grows tax-free (No tax on capital gains, no income taxes on interest and dividend payments)

-Government Grants:
CESG - 20% of your contributions up to $500 per year ($2.5k per year to max out)

Question 2

Monthly amount to contribute to RESP to maximize grants.

Answer 2

$208.33
($2500 annually)

Question 3

What is CESG?

Answer 3

Canadian Education Savings Grant
-20% of annual contributions up to $500
-Carries forward up to $1000 per year
-$7200 lifetime grant limit

Question 4

Contribution Limits of RESP

Answer 4

-No annual limit
-Lifetime contribution limit of $50k
-If you contribute more than $50k CRA will penalize you w. 1% per month on excess until it is withdrawn

Question 5

What is an EAP?

Answer 5

Educational Assistance Payments
-Portion of the RESP that comes from government grants, capital gains and investment income. Taxable as income, taxed at child’s hands (little to no tax)

Question 6

How are RESP’s taxed?

Answer 6

-No tax refund for contributions
-Money grows tax-free
-Money contributed is withdrawn tax-free as Post-secondary Education Payments
-Government grants, capital gains and investment income is withdrawn as Educational Assistance Payments (EAPs) and is taxable at the child’s hands (little to no tax, typically)

Question 7

Moving money if RESP is not used

Answer 7

-If you have family plan you can transfer the money to another child ($7200 grant limit still applies)
-Original contributions can be withdrawn tax-free
-Grant money must be returned to the government
-Income, capital gains and dividends are returned to you as an Accumulated Income Payment (AIP). Taxed the year you receive it PLUS 20%
-You can transfer the income to RRSP up to $50k. Child must be 21. RESP must be open for 10+ years. Must have room in RRSP.

Question 8

What is an AIP

Answer 8

Accumulated Income Payment
-If you don’t use an RESP your contributions are yours tax-free, grants go back to the government, all income earned can be returned to as an AIP. Taxable that year PLUS 20%

Question 9

What is a CLB

Answer 9

Canada Learning Bond
-for children in low-income families or children in care
-up to $2k

Question 10

When does an RESP have to be used?

Answer 10

Must be completed by the end of the calendar year of the 35th anniversary of the opening of the plan

Question 11

How much time do you have to cancel a scholarship plan?

Answer 11

60 days after signing the contract

Question 12

Minimum duration of qualifying educational programs for RESPs

Answer 12

-Full time in Canada: At least 3 weeks in a row with at least 10 hrs instruction per week

-Full time outside Canada: At least 13 weeks

-Part time in Canada: At least 3 weeks in a row, no less than 12 hrs per month