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Investing & Retirement - RESPs

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Visit our RESP section of our website or visit our contact page and submit your question through the "Who can help me?" link or call one of our financial experts at any of our three branches.

What is an RESP?
Why is it important to invest in my childs future?
What is the cost of an education?
Who is eligible to contribute?
Why contribute to an RESP?
What are the advantages of RESPs?
What are the contribution limits for RESPs?
What is the Canada Education Savings Grant (CESG)?
What is the Canada Learning Bond (CLB)?
What are Provincial Grants?
What are Educational Assitance Payments?
What happens if the named beneficiary does not enroll in post-secondary education?
What are qualified post-secondary institutions?
Who sells RESPs?
How can I get started with an RESP plan?
Who is the Subscriber?
Who is the Named Beneficiary?
What is the definition of a Spouse or Common-law Partner?
What is earned income?

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1. What is an RESP?

A Registered Education Savings Plan (RESP) is a government approved plan for the purpose of providing post-secondary education funding for a beneficiary. Income earned within the plan is not taxed until it is withdrawn.

For more information on OMISTA Credit Unions' RESPs please visit our RESP section or Contact us to consult with a Credential® investment professional before you make any decisions about an education savings plan. We have the expertise to help you build a plan that works within your means to achieve your goals.

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2. Why is it important to invest in my childs future?

"Education is a gateway to higher earnings," according to Statistics Canada and the 2001 Census.

More than 60% of Canadians in the highest earning category - over $100,000 a year - have a university degree.

However, one of the best reasons to begin investing in your childs education early is eliviate your child from the financial stress of carrying a large loan when they graduate from post secondary education.

3. What is the cost of an education?

A four-year degree with living expenses factored in costs about $60,282, according to Human Resources Development Canada. In 2010, costs jump to $85,948.

When today's newborns turn 18, a four-year degree could cost more than $102,627! Imagine how long it will take to pay off $80,000 in loans.

Start investing in a RESP today so your child won't be stuck with a large student loan when he or she finishes school.

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4. Who is eligible to contribute?

To qualify for the Canada Education Savings Grant, you must have an RESP in place by the end of the year in which your child turns 15.

Effective January 1, 2004, an individual must have a SIN (Social Insurance Number) and be a resident of Canada to be designated as a beneficiary under an RESP. Applications for SINs can be obtained from the Social Development Canada website at www.sdc.gc.ca or by calling 1-800-206-7218.

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5. Why contribute to an RESP?

A post-secondary education is critical in an increasingly competitive job market. With the costs of higher education ever increasing, each year fewer high school graduates are in a position to afford to continue their education so planning now for your family is essential. Investing in an RESP will give you and your family members more financial freedom when making the choices that will affect their future. By starting now, you can grow your education funds by making more affordable, convenient monthly deposits. Planning today for tomorrow is the smart way to realize your family's education goals.

6. What are the advantages of RESPs?

The Canadian Education Savings Grant (CESG) provides additional education funding.
Income earned within the plan is tax-sheltered until withdrawn. If withdrawn by the beneficiary, he or she will usually have a lower marginal tax rate.
An RESP provides long-term planning for a beneficiary to attend a post-secondary institution.
Contributions belong to the subscriber and can be withdrawn without concequence once the beneficiary is EAP eligible.

7. What are the contribution limits for RESPs?

Lifetime Contribution Cap: $50 000 per beneficiary

8. What is the Canada Education Savings Grant (CESG)?

The CESG program allows eligible RESP beneficiaries to receive grant monies based on the annual contributions paid into the plan. The government will contribute 20% annually on the first $2500 deposited into an RESP for children to the end of the year in which the child attains age 17*. All children under the age of 18* who are resident in Canada automatically acumulate CESG contribution room.

Annual CESG maximum: $500 per beneficiary

Lifetime CESG maximum: $7200 per beneficiary

Additional CESG
Eligible beneficiaries receive up to 20% additional CESG on the first $500 RESP contributions.
Eligibility for additonal CESG is determined by the family's net income and entitlement to the National Child Benefit (NCB) supplement.

Eligible beneficiaries could receive additional CESG of $100 annually for a total combined basic and additional CESG of $500 annually.
Lifetime CESG maximum remains at $7200 per beneficiary.

*Some restrictions apply for RESP beneficiaries aged 16 and 17

NOTE: To qualify for the Canada Education Savings Grant, your child requires a Social Insurance Number (SIN). Effective January 1, 2004, your child will require a SIN before being named as a beneficiary of an RESP. Applications for SINs can be obtained from the Social Development Canada website at www.sdc.gc.ca or by calling 1-800-206-7218.

9. What is the Canada Learning Bond (CLB)?

The CLB is available to children born on or after January 1, 2004. Eligible beneficiaries will receive an initial grant of $500 and subsequent grants of $100 per year of eligibility.

The CLB eligibility is determined by the child's family's net income and entitlement to the NCB supplement. The lifetime CLB maximum is $2000 per beneficiary.

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10. What are Provincial Grants?

The Government of Canada has made provision to permit provincial grants to be held in an RESP. In 2005, the Government of Alberta introduced the Alberta Centennial Education Savings Plan (Alberta Grant) for children born on or after January 1, 2005. Eligible beneficiaries will receive an initial Alberta Grant of $500 and subsequent grants of $100 at ages 8, 11 and 14*.

Eligibility for the initial Alberta Grant is based on residency of the parent or guardian and application for the Grant being completeted within 2 years of the child's date of birth. Eligibility for subsequent Alberta Grants is based on the child attending school in Alberta, residency of the parent or guardian and minimum contributions being made to the plan.

*Legislation was passed in 2006, but is not yet in force, that would remove the date of birth requirement for the subsequent Alberta Grant. Every child enrolled in a school in Alberta would be eligible for the subsequent grants at age 8, 11 and 14.

11. What are Educational Assitance Payments?

Educational Assistance Payments (comprised of earnings and the CESG) may be drawn from the RESP to cover expenses associated with the pursuit of higher education in a qualified program - tuition fees, textbooks, room and board, etc. These payments are taxable to the beneficiary.

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12. What happens if the named beneficiary does not enroll in post-secondary education?

If a named beneficiary does not enroll in post secondary education you have several options for the plan.

Note: An RESP can exist for a maximum of 25 years after the year it is opened, at which time #3 becomes the only available option.

Change the plan beneficiary*
Transfer funds to another RESP where you are the subscriber*
Collapse the plan*

If you choose #3 you will have to return the unused CESG monies to the government. The principal monies are considered a refund of contributions and can be withdrawn without penalty. The following options are available for disbursement of income earned within the plan:

Transfer funds to the subscriber's RRSP or to a spousal plan*
Withdraw the funds*
Transfer funds to the Designated Educational Institution

*Some restrictions and/or penalties apply

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13. What are qualified post-secondary institutions?

Most Canadian post-secondary institutions and programs, including correspondence courses, qualify for the purpose of receiving RESP Educational Assistance Payments. Certain foreign post-secondary instutions may qualify.

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14. Who sells RESPs?

Credit Unions, trust companies, life insurance, mutual fund companies, banks and investment dealers all sell RESPs. While all RESPs have the same ultimate goal, not all plans are the same. Each issuer offers one or more ways to invest your money, and the growth rates, terms, conditions and fees vary.

We would be happy to provide financial guidance. You can meet with our investment professionals at any of our five branches our wealth management representative, Investment Specialist, Ozzie MacKay or Dave Gorman, Credential Financial Strategies Inc. Representative.

You can also click here to access our on-line financial planning tool.

15. How can I get started with an RESP plan?

Every dream is different and every student is unique. Contact us to consult with a Credential® investment professional before you make any decisions about an education savings plan. We have the expertise to help you build a plan that works within your means to achieve your goals.

16. Who is the Subscriber?

The subscriber is the registered owner of the plan and can be an individual, or an individual and his or her spouse. Only the subscriber can make contributions to an RESP and these contributions are not tax deductible.

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17. Who is the Named Beneficiary?

The named beneficiary is individual who is eligible to receive the Educational Assistance Payments from the plan. There is a limit of one beneficiary per plan, except under a Family Plan, which provides for multiple beneficiaries. The beneficiaries of a Family Plan must be 'related' to the subscriber(s).

Effective January 1, 2004, an individual must have a SIN (Social Insurance Number) and be a resident of Canada to be designated as a beneficiary under an RESP.

18. What is the definition of a Spouse or Common-law Partner?

As of 2001, income tax legislation defines the term "spouse" to be a person of the opposite sex who is party to a legal marriage. As well, the term "common-law partner" has been introduced and is defined as two persons, regardless of sex, who cohabit in a conjugal relationship and who have cohabited throughout the 12 month period that ends at that time. This period can be less than 12 months if both partners are the natural or adoptive parents of the same child, or if one common-law partner has a child who is wholly dependent on the other for support and over whom the other has custody. The term "common-law partner" does not apply if at the particular time the individuals were seperated for 90 days or more dues to a breakdown of the conjugal relationship.

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19. What is earned income?

Your RRSP deduction is based on your prior year's earned income. The following qualify as earned income:

salary, wages, bonuses and taxable fringe benefits (minus union or professional dues and employment expenses claimed as deductions)
taxable wage loss replacement or long term disability income resulting from employment
Canada pension plan disability benefits
net income from self-employment (minus current year business losses)
net rental income from real estate (minus current year rental losses)
taxable alimony or maintenance payments received
royalties of an author or inventor
net research grants

NOTES:

Earned income must be reduced by deductible alimony or maintenance payments.

Interest, dividend, capital gains income, and E.I. benefits, do not qualify as earned income.

Income in which is not taxed, such as Workers' Compensation and welfare benefits, cannot be used as earned income.

*Credential Financial Strategies Inc. is a member company under Credential Financial Inc., offering financial planning, life insurance and investments to members of credit unions and their communities. Credential® is a registered mark owned by Credential Financial Inc. and is used under licence.

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