Whether your child is just learning how to crawl or is starting to master their times tables, you are probably thinking a lot about what their future will look like.
Your child will likely be interested in some form of post-secondary education – be it community college, university or an apprenticeship.
But higher education can be expensive. The average annual cost of post-secondary education in Canada is $19,499.1 So, how can you help your child afford to continue their education? Enter RESPs, a smart and ideal way to fund a child’s future ambitions.
What is an RESP?
A Registered Education Savings Plan is a popular way to set aside money for your child’s or grandchild’s education and allow it to grow tax-deferred until they need it to pay for school.
How much can I contribute to an RESP?
You can make contributions of up to a lifetime maximum of $50,000 per beneficiary (a.k.a. your child or whoever the RESP is set up for).
What types of RESPs can I chose from?
There are options:
- A family plan to pool contributions for one or more children in the same family until age 31
- An individual plan to name one beneficiary without age or relationship restrictions (it can even be yourself)
Are my RESP contributions tax deductible?
Contributions are not tax-deductible, but the investment income earned inside the plan is tax-deferred until you withdraw it.
When the funds are taken out of the RESP as an Education Assistance Payment, the investment income and grants are considered taxable income to the beneficiary. Your child will need to make sure they claim this amount as part of their taxes that year.
How can I make an RESP contribution?
You can deposit a lump sum or arrange to have Pre-Authorized Contributions (PAC) taken from your bank account on a regular basis. Check out the Scotiabank RESP Reality Check online tool to see how you can plan out your savings for your child’s education.
What if my child decides not to pursue a post-secondary education?
You have several options:
- You can name another beneficiary, if certain conditions are met
- You can make a tax-free withdrawal of your original contributions, but any grants and bonds received must be returned to the government.
- You may be able to transfer up to $50,000 of the investment income, tax-free to your Registered Retirement Savings Plan (RRSP) or your spousal RRSP if you have enough contribution room available. You can also withdraw the investment income as cash (which would be subject to taxes).2
Are there any government grants available to help grow an RESP?
Yes – there are federal government incentives available.3 More than half (56%) of Canadian parents have not taken advantage of various grants available within an RESP.4
Here are some options to look into.
- The Canada Education Savings Grant (CESG) matches 20% on the first $2,500 of your eligible contributions each year. Receive up to $500 per year per beneficiary under 18 to a maximum of $7,200.5
- Depending on your net family income, you could also receive an additional CESG, of 10% or 20% on the first $500 contributed each year, up to $100 per year per beneficiary under 18 towards the maximum lifetime CESG of $7,200.5
- Children who were born on or after January 1, 2004 and depending on the adjusted income of their primary care giver, may receive the Canada Learning Bond (CLB) which offers a $500 initial deposit, then $100 per year until the eligible beneficiary reaches 15 years of age, to a maximum of $2,000.6 You do not have to contribute to your RESP to apply for or receive the CLB.
How to open an RESP?
Want to talk more about how you can save for your child’s educational future? Check out investment tips, tools and more at our Investment Centre.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
1. Source: Macleans magazine (2018). Weighted average of all major expenses for a typical undergrad student living off-campus at a Canadian university.
2. Some conditions apply. Speak with your financial advisor for more details.
3. Conditions apply to all government incentives. Please ask your financial advisor for details
4. Ipsos Poll conducted between August 3 and 15, 2017 https://www.ipsos.com/en-ca/news-polls/canada-parents-RESP-knowledge-first-financial
5. Until December 31st of the year the beneficiary turns 17. Restrictions apply.
6. The Canada Revenue Agency determines eligibility.