The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
What happens if your kids don't go to school? You've contributed for years to Registered Education Savings Plans (RESPs) for your children Ð but what happens to that money if they decide a post-secondary education isn't for them? Can you use the funds for other purposes? The simple answer is "yes," as long as you follow certain rules. Here's a quick education on your RESP options. There are three components to every RESP: - The contributions you pay in, to a yearly maximum of $4,000 and a lifetime maximum of $42,000 per beneficiary. - The Canadian Education Savings Grant (CES Grant) that the government pays in, based on a percentage of your contributions to a yearly maximum of generally $400 and a lifetime maximum of $7,200 per beneficiary. - The income from the plan. Some RESPs include a fourth component: the Canada Learning Bond (CLB), which provides up to $2,000 for a child born after 2003 in a family entitled to the National Child Benefit. If you have an "individual non-family" plan Ð meaning there is only one beneficiary Ð you may change the named beneficiary at any time, or do a total or partial transfer of the plan to another RESP with a different beneficiary. While a beneficiary change will result in a repayment of any CLB in the plan, all contributions and plan income will remain in the plan and be available to the new beneficiary. CES Grant will also remain for the new beneficiary as long as the new beneficiary is under 21 and a sibling of the old beneficiary, or if both the new and old beneficiaries are under 21 and "connected" by blood relationship or adoption to the original subscriber. If you have an "individual family" plan Ð meaning the RESP permits more than one beneficiary where all beneficiaries are "connected" to the subscriber Ð you may add a new beneficiary at any time as long as the new beneficiary is "connected" to the subscriber by blood relationship or adoption. CLB can only be used for the original beneficiary but contributions, plan income, and CES Grant are available to any beneficiary under the plan. If your beneficiary decides not to use the proceeds in their RESP for an education, and there are no other family members who can be added as beneficiaries to the plan, then you can access the money through: A refund of contributions - You, as the subscriber, may withdraw your contributions at any time without any tax implications, but you will have to repay any CES Grant or CLB received as a result of your contributions. Accumulated Income Payments (AIPs) - You, as the subscriber, can withdraw plan income as an AIP so long as you are a Canadian resident, the plan is at least 10 years old, and the beneficiary is at least 21 years old and not pursuing a post-secondary education. (If the beneficiary is disabled or deceased, some of these requirements can be waived.) AIPs are fully taxable to you (the subscriber) at your marginal tax rate when withdrawn. In addition, the AIP is subject to a 20% penalty tax. However, you can tax-shelter the AIP and avoid the penalty tax by transferring up to $50,000 of it to your RRSP or your spousal RRSP, if you have contribution room. To learn more about RESPs and other effective financial planning strategies, talk to a professional financial advisor. This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
