RESP

The RESP was introduced by the Canadian government in 1972 as a way to encourage savings for post-secondary education. Initially, the RESP was a simple savings vehicle without significant government contributions or incentives. A major enhancement came in 1998 with the introduction of the Canada Education Savings Grant (CESG), which provides a government match on contributions. The CESG was a significant development, as it added a direct financial incentive to save for education, with the government contributing a percentage of the annual contributions made to an RESP.

In 2004, the Canada Learning Bond (CLB) was introduced, providing additional government contributions for low-income families, even if they couldn't contribute to their RESP. Over the years, the contribution limits and structure of the RESP have evolved to better accommodate the rising costs of education and the varying needs of Canadian families. The RESP has become an integral part of educational planning in Canada, offering tax-deferred growth and government grants to make post-secondary education more accessible.

Today, the RESP is not just a savings tool but also a vehicle for social policy, aiming to increase post-secondary education participation among all socio-economic groups.

1. Education Savings Vehicle: RESPs are designed to encourage saving for a child’s post-secondary education. The government supports these savings efforts through grants and incentives, making it more attractive for families to save for education.
2. Tax-Deferred Growth: Contributions to an RESP are not tax-deductible, but the investment income earned within the plan is tax-deferred. This means the growth (interest, dividends, capital gains) is not taxed as long as it remains in the plan.

1. Canada Education Savings Grant (CESG): The government matches a percentage of annual contributions, up to a certain limit, with the CESG. The grant amount depends on the family's income and contribution amount.
2. Additional Grants and Bonds: Depending on the family's income, additional grants like the Canada Learning Bond (CLB) and Additional CESG may be available.

1. Lifetime Contribution Limit: Unlike RRSPs, RESPs have a lifetime contribution limit per beneficiary, but there are no annual contribution limits.
2. Contribution Timeframe: Contributions can be made up to 31 years after the plan is opened, and the plan can remain open for a maximum of 35 years.

1. Educational Assistance Payments (EAPs): When the beneficiary enrolls in a qualifying post-secondary education program, EAPs can be withdrawn to pay for education-related expenses. EAPs include the investment income and government grants and are taxed in the hands of the student, who typically has a lower tax rate.
2. Flexibility: If the beneficiary does not pursue post-secondary education, options include transferring the RESP to another beneficiary or withdrawing the contributions tax-free (grants must be returned to the government).

1.   Variety of Options: Like RRSPs, RESPs can hold various types of investments, including stocks, bonds, mutual funds, and GICs. 

1.   Family and Individual Plans: RESPs come in two main types - family plans (allowing multiple beneficiaries who are related to the subscriber) and individual plans (for one beneficiary with no family relation requirement).  

1.     Designation of Successor Subscriber: In case of the subscriber's death, a successor can be named to take over the RESP. 

1. Impact on Government Assistance: Unlike TFSAs or RRSPs, RESP withdrawals (EAPs) can affect the beneficiary’s eligibility for income-tested student aid.
2. Professional Advice: Consulting with a financial advisor can be beneficial to understand how an RESP fits into your overall financial strategy, especially when considering government grants and educational goals.

 RESPs are a key component of education planning in Canada, offering tax-advantaged savings and government contributions to support educational goals. Understanding the specifics of how RESPs work can help families effectively plan and save for the increasing costs of post-secondary education.