What is a Registered Education Savings Plan?

A Registered Education Savings Plan (RESP) is an account designed to help individuals save for post-secondary education. The Government of Canada offers various incentives to encourage saving for education, including grants that can be added to your RESP. The recipient of these grants is referred to as the beneficiary.

Types of RESP Accounts

There are two types of RESP accounts that can be opened:

Individual RESP

• This plan is limited to a single beneficiary.
• It can be opened by anyone, whether they are related to the beneficiary or not.
• Adults (18 years and older) can open an individual RESP for their own education, but they are not eligible for the Basic Canada Education Savings Grant (CESG).

Family RESP

• This plan can include one or more beneficiaries who are related to the primary account holder.
• Beneficiaries can be added to a family RESP throughout the life of the account.
• Family RESPs can only be opened by parents, grandparents, or siblings, and must have siblings as beneficiaries.
• Co-ownership: A RESP can be opened with a co-owner, who must be the spouse or common-law partner of the primary account holder.

Note: For further details, please consult the Government of Canada page on RESPs.

Benefits of Investing in an RESP Account

• There is no annual contribution limit to an RESP account, but there is a lifetime contribution limit of CAD $50,000 per beneficiary across all active accounts.
• Contributions can be made to the RESP account for up to 31 years, and the plan can remain open for a maximum of 36 years.

Government Grants Available for RESP Accounts

The Government of Canada provides the following grants to help maximize RESP savings:

• Canada Education Savings Grant (CESG): The government contributes up to $500 per year for an RESP account, with a lifetime maximum of CAD $7,200 per child, until the calendar year they turn 17.
• Additional CESG: This grant is offered based on the adjusted net family income of the beneficiary.
• Canada Learning Bond (CLB): Available to beneficiaries from low-income families born in 2004 or later. This grant provides an initial $500, plus $100 per additional year of eligibility (up to 15 years), for a maximum of $2,000.

Important: The province of British Columbia also offers an additional grant for beneficiaries who reside in the province. Please contact our support team for more information.

Limitations of Investing in an RESP Account

• Contribution Limit: Contributions exceeding the lifetime CAD $50,000 limit are subject to a 1% monthly penalty until the excess is withdrawn.
• Early Withdrawals: If you make an early withdrawal from your RESP, any earnings are subject to a 20% penalty fee and income tax.
• Unused Funds: If the RESP funds are not used for the beneficiary’s education within 36 years, the government will reclaim its portion of contributions, and earnings may be taxed.

Eligibility for RESP Accounts

You can open an RESP account for a beneficiary who:

• Has a Social Insurance Number (SIN).
• Is a resident of Canada.
• You (the subscriber) must be 18 years or older to open the account.

Opening an RESP Account

To open an RESP account, follow these steps:

1. Initiate the RESP account creation through the website
2. Select the RESP account type (Individual or Family).
3. Add beneficiary information: name, address, date of birth, gender, SIN.
4. Add primary caregiver (PCG) information: name, address, email, SIN (only if the beneficiary is under 21 and the account holder is not the primary caregiver).
5. Consent: If the beneficiary is under 21, the primary caregiver or legal guardian must sign a form providing consent for the RESP creation and sharing of beneficiary data.
6. Confirm consent for OneVest to apply for available government grants.
7. Submit for review.

Once your RESP account is open:

• All applicable custodian fees apply, regardless of account type.
• There are no fees for withdrawals.
• Beneficiaries can be updated at any time without penalty, as long as the child is under 21 years of age.

Contributions to an RESP Account

RESP contributions can be divided into two categories:

1. Post-Secondary Education (PSE): Contributions made by the account holder and co-owner.
   • These contributions can be withdrawn by the account holder.
2. Educational Assistance Payment (EAP): The earnings from the RESP and any government grants.
   • These funds can only be withdrawn by the beneficiary once they enroll in a post-secondary institution.

Note: You are not required to make minimum contributions or set up regular payments once your account is set up, but to receive the Basic CESG, the account holder must contribute.

Withdrawal Policies

• Account holders are the only individuals who can request withdrawals from the RESP account.
• Contributions made by the account holder (PSE) can be withdrawn by either the account holder or the beneficiary.
• Government grants and earnings are only available to the beneficiary.

Penalty for Early Withdrawal: If you withdraw funds early for non-educational purposes, you will be subject to a 20% tax penalty on the earnings.

When Beneficiaries Go to School

• Full-time Education: If the beneficiary attends a full-time eligible educational institution, withdrawals can be made to cover their educational expenses.
• Part-time Education: If attending part-time, they can receive up to $2,500 per 13-week semester (as long as they complete 12 hours of coursework per month).

Handling Unused RESP Funds

If the beneficiary does not complete their post-secondary education, you have a few options for handling the remaining RESP funds:

1. Transfer the funds to another RESP or allow other beneficiaries to use the contributions (if it's a family RESP).
2. Transfer the funds to an RRSP (depending on contribution room), excluding government grants.
3. Withdraw the funds as cash (excluding government grants), but the earnings will be subject to tax.

RESP Account Transfers

Transfers can be done under the following circumstances:

• The relinquishing and receiving RESPs have a common beneficiary.
• If the beneficiaries are siblings, and:
  • The receiving RESP is a family RESP, or
  • The receiving RESP is an individual RESP for a beneficiary under 21.

If no criteria are met, government grants may have to be repaid.

Note: There is no cost to transfer an RESP to OneVest; however, the relinquishing institution may charge transfer fees.

Frequently Asked Questions

1. Can I open an RESP account anytime? Yes, you can open an RESP account at any time.
2. When is the best time to open an RESP? The best time to open an RESP depends on your goals and financial situation. For personalized advice, please contact the OneVest support team.
3. How do I transfer RESP plans? Transfers are currently managed manually. Please contact the support team for assistance with RESP transfers.
4. How can I close an RESP account? To close an RESP, you must withdraw all funds or transfer them to another institution, cancel scheduled contributions, and reach out to the support team.

Disclaimers: 

RESP withdrawals, especially those not used for educational purposes, can have significant tax consequences. Please consult a tax professional for advice regarding your specific situation. This article does not represent a tax or investment strategy recommendation. You should consult with a tax advisor or financial professional to ensure this is the right move based on your personal financial situation.

RESP investments involve risk, including the potential loss of capital. Past performance is not indicative of future results. Always consider your investment objectives and risk tolerance before making decisions.

Access to government grants like the CESG and CLB is dependent on meeting specific eligibility criteria. Please consult a tax professional or financial advisor for more information.

Manzil Invest is a strategic partnership between Manzil and OneVest Management Inc (“OneVest”). OneVest offers wealth management products and services to Manzil customers. OneVest Management Inc. is a registered Portfolio Manager in each of the provinces and territories of Canada and as an Investment Fund Manager in the provinces of Alberta, Ontario, Newfoundland and Labrador, and Quebec. Assets in your OneVest accounts are held with various custodians, each registered as an investment dealer with the applicable securities regulators. All custodians are members of the Canadian Investment Regulatory Organization (“CIRO”) and the Canadian Investor Protection Fund (CIPF). OneVest is a wholly-owned subsidiary of OneVest Technologies Inc. All trademarks are the property of their respective owners. OneVest will determine what investments are suitable for you.