What You Need to Know about Registered Education Savings Plan (RESP)

The Registered Education Savings Plan or RESP can be defined as a contract or an agreement between two parties in which an individual (subscriber) can declare one or more beneficiaries, agreeing to make financial contributions for them. The agreement requires the other party (promoter) to pay EAPs or educational assistance payments to the beneficiaries. Let's take a quick look at some important facts you need to know about this savings plan:

• Normally, you can make contributions to family plans in the case of beneficiaries who are below the age of 31 at the time of contribution. You can, however, make transfers from one family plan to the other even for beneficiaries over the age of 31.

• Since 2007, there has been no limit on the annual contributions you make to RESP and the lifetime limit of contributions that can be made for one beneficiary is $50,000. 

• However, any payment you make under a designated provincial program or the Canada Education Savings Act will not be considered when determining whether or not the lifetime limit has been exceeded.

• When excess contributions are made, subscribers have to pay taxes of 1% per month on their share if the excess has not been withdrawn by a certain deadline. So, you can easily cut down on the liable tax amount by withdrawing any excess contribution.

• If, for some reason, the promoter does not pay out the contributions you have made to the beneficiary, you will receive the accumulated sum by the end of the contract. You would not need to declare this amount as your income.

These are just some of the basic facts you need to know about the Registered Education Savings Plan, so you can get a rough idea of the agreement before making your contributions. Whether you wish to contribute to the RESP for your children, spouse, or any other beneficiary, you can learn more about the plan to help you make the right decision.