| 1. | Who can contribute to an RESP?
Anyone can contribute to an RESP. Immediate family, grandparents, uncles and aunts and even friends of the beneficiary call all contribute. But it’s important to note that the source of the contributions will have a bearing on the type of RESP account that is opened on the beneficiaries’ behalf. There are two different types of plans available from Manulife Mutual Funds: Family plans and Individual plans.
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| 2. | What is the Canada Education Savings Grant (CESG)?
Through the CESG, the government adds 20 per cent to the first $2,500 of annual contributions made to all RESPs of a qualifying beneficiary to a maximum grant of $500 per child per year.
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| 3. | What are the consequences of over-contributing to an RESP?
Over-contributions (exceeding maximum $50,000 lifetime contribution limit) to an RESP are subject to 1 per cent per month tax on the excess amount until it is withdrawn. The excess amount still counts against the lifetime limit even if it has been withdrawn.
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| 4. | When must an RESP be terminated?
Contributions to an RESP can be made for 22 years but the RESP must be terminated on or before December 31st of the plan’s 36th year or by the end of February of the year after the first Accumulated Income Payment (AIP). The age of the beneficiary is irrelevant. Thus, it is possible for a beneficiary to take time off to work or travel before beginning their post-secondary education.
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| 5. | Can a subscriber be changed or replaced on an RESP account?
Yes. In the case of separation or divorce, a spouse or former spouse may replace the original subscriber on an RESP as a result of a court order or written agreement.
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| 6. | Can a change be made to the original beneficiary?
Yes, the RESP allows for a beneficiary to be changed or replaced at any time.
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| 7. | If the beneficiary does not go on to post-secondary education, what happens to the proceeds in the RESP?
An RESP can be transferred into the subscriber’s RRSP or spousal RRSP provided they have the available contribution room (up to a maximum of $50,000). There are, however, some stipulations involving the transfer:
- The RESP beneficiary (ies) must have reached the age of 31 and is (are) ineligible for educational assistance payments
- The RESP account must have been held for at least 10 years
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| 8. | Is the money contributed to an RESP tax deductible?
No. RESP contributions, or any interest owed on money borrowed to contribute, are not tax deductible. However, any investment income earned within the RESP will grow free of tax until a beneficiary withdraws the funds to pay for their post-secondary education (an educational assistance payment “EAP”). When an EAP is received, it is taxed at the beneficiary’s marginal tax rate. |
