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April 2019

Education Finance

7 Ways That Registered Education Savings Plans Work

Parents who are saving for their children’s college education often wonder about the benefits of certain savings plans. Will they have enough to fulfil their child’s educational needs when the time comes to enrol in a higher educational institution? One of the plans they often investigate is the heritage RESP or Registered Education Savings Plan. Below are the primary ways that this type of plan can be used. These plans are also known as RESPs.

1. Contributions Are Made by a Subscriber
When you register as a subscriber in a RESP, you make contributions to the savings plan. You cannot take deductions on your income tax and benefit form for these contributions. As a subscriber, you enter into the plan with a promoter and name one or more people for whom you are making contributions.

2. A Promoter Pays the Contributions
When registered savings plans are in force, a promoter pays the contributions and income that was earned on those contributions. Payments are made to the beneficiary. Any income earned is remitted as an educational assistance payment of EAP. The promoter administers the amounts that are paid into the Registered Savings account.
The income remains untaxed as long as it remains in the savings plan. The promoter must make the payment according to the instructions of the plan. A promoter may return any contributions tax-free. He or she can also make accumulated payments to the beneficiary.

3. The Beneficiary Receives His or Her Contributions from the Promoter
Beneficiaries of a Registered Education Savings Plan receive contributions and educational assistance payments from the promoter. EAPs are added in the beneficiary’s income for the year. The contributions are not included in the beneficiary’s income. The beneficiary uses the contributions to finance post-secondary training.

4. The Canada Revenue Agency Registers the RESP Contract
When the Canada Revenue Agency registers the RESP agreements, the savings limits are established at this time. These limits state how much can be contributed for the listed beneficiary. Therefore, these limits are considered contribution limits contractually

5. Restrictions Are Not Placed on Who Can Subscribe to the Plan
Unless you opt for a family plan, you can sign up as a subscriber if you are the parents of a beneficiary or a primary caregiver. A primary caregiver receives special permission to contribute to a RESP and is an entity, such as a department or agency, that cares for the beneficiary, or a public curator or trustee in the province where the beneficiary lives.

6. Subscribers Must Provide Their SIN to the Promoter
To facilitate a heritage RESP, a subscriber must render his or her social insurance number to the promoter of the plan. Otherwise, he or she cannot register.

7. Sign up for a Family Plan If You Are Saving for More Than One Beneficiary.

If you have more than one child in your household whom you want to support educationally, you need to sign up as a subscriber for the family plan. Each beneficiary in this plan must be related by blood or must be adopted. The children must be under 21 years of age to be named as beneficiaries. If a family plan is transferred to another family plan, a beneficiary who is at least 21 years old can still become a beneficiary of the new plan.