RESPs are tax-sheltered savings vehicles. You don’t get a tax deduction for contributing to an RESP, but you don’t have to pay tax on the growth until it is withdrawn from the plan. Since many students have little or no income, they can usually withdraw the money tax-free.
Previously you could save up to $4,000 per year in an RESP, with a lifetime maximum of $42,000 per child. The Federal Budget of March 19, 2007 has removed the annual contribution limit to RESPs and increased the lifetime maximum to $50,000.
When you open an RESP for a child, the Government of Canada will add the Canada Education Savings Grant (CESG) to your savings. The CESG could provide up to an additional $7,200 lifetime benefit per child. For more information on the CESG, visit the RESP section of the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/menu-eng.html.
This is an increasingly popular way for parents to save for their child’s education. Making sure that you are adequately insured in the event of disability or death may ensure that your family can afford to continue contributions to your child’s RESP.