You can setup an RESP for any individual (child, grandchild, nieces, nephews, friends) called a “beneficiary” i.e. the child or student to benefit from the plan. In order to qualify the beneficiary must have a social insurance number as there are tax benefits and grants that need to be accounted for. Apart from young children, an adult can name themselves as a beneficiary for an RESP. The only restriction is that an adult wouldn't qualify for the Canada Education Savings Grant based on age limits detailed below.

The most important consideration when opening up an RESP if you're not a child is that the benefits of government grants only apply to those under age of 18. In addition, your child has to be 15 and you have to open up the RESP account before end f that calendar year for them to qualify for the 20% government grant. This is why it's important to start saving early for your child's Registered Education Savings Plan.

At age 16 or 17, your contributions will only get the 20% CESG top-up if at least one of two conditions are met:

• At least $100 was contributed and not withdrawn from the RESP in at least four of the years prior to the end of the year the child turned 15.
• At least $2,000 was contributed and not withdrawn from the RESP before the end of the year they turned 15.

$50,000 is the lifetime limit per child across all RESP accounts you open, that can be contributed to a beneficiary’s RESPs. Similar to a TFSA, you will be required to pay tax in the amount of 1% per month on your share of the amount above $50,000 that is over-contributed until you withdraw it.

There is no advantage or disadvantage to how much of the $50,000 you contribute. This is because the government of Canada will only give you the CESG grant top-up for the first $2,500 each year you save, unless you are carrying forward unused contribution room. What most people will do is contribute the $2,500 or $208/month to get the maximum benefit yearly.

RESP contribution room, carry-forward rules

You can catch up on RESP contribution if you’ve fallen behind similar to the room you have in an RRSP or TFSA. This contribution room allows you $2,500 each year from the time the child is born. For example, if your child was born in 2020 and, because of all that was going on that year with the virus, you didn't get to opening up an account until 2022, you would be entitled to start with $5,000 worth of contribution room rather than having to start from $0 in 2022 when you opened the account.

There is a catch though...

Carry-forwards on CESG grant limits

Using the $5,000 room above, it's important to note that if you put all of it in it doesn't mean you will get all the grant money as would be the case in typical circumstances. In the case of carry forwards, the government will only give a maximum Canada Education Savings Grant of $1,000 in a given year. Using the 20% CESG amount for every $2,500 of your contributions, if you contribute more than $5,000 i.e. $7,500 ($2,500 for the current year + $5,000 carry-forward) you won’t receive grants for the overage over $5,000 as the two separate $2,500 contributions give you $500+$500 = $1,000 maximum grant allowed.

In addition, for carry-forwards , excess annual contributions do not carry forward to future years as credits.

The Canada Education Savings Grant (CESG) is a savings grant top-up available to Canadian students. It provides parents, grandparents or family friends who choose to invest in an RESP with grants of up to a maximum of $7,200 (or more) over the lifetime of the Registered Education Savings Plan. It's basically 'free' money or an incentive the government uses to help benefactors save for the education of children.

The Basic CESG program rewards you for contributing to your RESP on an annual basis. The government provides a grant of 20% of the amount you contribute in a year to a maximum of $500/year which is typically 20% on $2,500 contribution. The maximum Basic CESG grant amount you can receive over the lifetime of your RESP is $7,200. 

For low income families i.e. those making less than $49,020 in net family income, the government offers even more whereby the government will add up to $100 after you invest your first $500 each year. In general, the maximum grant you can receive with the Additional CESG for families making less than $49,020 is $600.

Additional CESG is paid on the first $500 of annual contribution. Basic CESG is paid on first $2,500 of annual contribution. So, if you make more than $49,020 to $98,040, your maximum grant is $550. If you make over $98,040, the maximum CESG is $500.

Note: if you receive Additional CESG, the lifetime maximum of $7,200 still applies regardless.

When you work with the bank branch you are able to open an RESP. However, the biggest complaint we get from clients is that they would like better service and investment options. When you buy the bank RESP funds you can only invest in that banks product. So, if you bank with TD you can only access TD products. In addition, people complain about the returns. This is because bank employees have the role of having to deal with many people, so rather than manage your RESP investments by putting them into appropriate funds, they put it into conservative funds where you don't lose a lot of money but you don't make money as well. This is so they can get more clients.

When you work with Blue Alpha Wealth we work with you directly and help you understand and manage your funds so that you feel confident that they grow to meet the education funding needs of your children when they need it.

RESP plan providers like Heritage or CST are doing a noble thing of helping families save for their children's education. They make it easy for families to pool their funds with other families so as to try and get the biggest bang for their buck. However, by "grouping" your RESP contributions with the contributions of others you have some disadvantages.

1. Group plans have costly administrative fees that erode your RESP values. These are taken off from the top before you invest.
2. If you decide to move your account or work with an independent financial advisor the fees for redeeming your funds are steep.
3. You don't have the same investment choices as if you setup your own individual account.

When you work with a financial advisor you create a custom plan that fits your situation and goals. You are not locked-in and you benefit from working one-on-one with a professional advisor.

There is no limit on the number of plans that an individual can have in their name. The total lifetime contribution limit of $50,000 still applies. It's important for the subscribers (parents, grandparents, family friends) of each plan to coordinate contributions to ensure that lifetime limits are not exceeded to avoid the 1% tax.

You can typically invest in stocks, bonds and investment funds. The key to remember is that you don't have to take too much risk investing in aggressive investments like cryptocurrency or silver bullet investments. Since you are getting the 20% CESG grant, consider that as an "investment gain" that reduces the need to "try knock it out the park" with investment returns.

You can contribute to your RESP for up to 31 years after the plan is opened. Following that, you have until the 35th anniversary date of the opening of the plan to use the funds before your RESP expires.

What happens to the investment funds after a plan expires?

If your plan expires with funds remaining, here’s what happens:

• The government contributions (e.g. from the Canada Education Savings Grant or Canada Learning Bond) will be returned to the government.
• Personal contributions will be returned to the plan subscriber (i.e. the person who opened the RESP)
• Income earned in the RESP (e.g. capital gains, interest) will be returned to you if all of the following are true:
  • All beneficiaries of the plan are at least 21 years old and are not eligible for an Educational Assistance Payment (EAP);
  • The subscriber is a Canadian resident; and
  • The RESP was opened at least 10 years prior to it expiring.

If the above is true, the money is withdrawn as an Accumulated Income Payment, i.e. your child isn’t going to school and you want to take the income earned out of the RESP, which can carry a high tax penalty (marginal income tax rate, plus an additional 20%). If you don't prefer that burdensome option, you can transfer those funds to your RRSP provided you have RRSP contribution room.

You can open up an RESP plan as an individual plan i.e. one child or as a family plan if there are siblings or multiple beneficiaries. The nice thing about this is that if one child decides not to go to University or college, the funds can be used by the other beneficiaries.

The government grants in your RESP were provided with the understanding that those funds would be used for postsecondary education. When it’s time to withdraw, you’ll need to prove that your student has enrolled, and then you can proceed to withdraw the funds you need. Otherwise, you can deposit it into an RRSP as detailed above in the event the child chooses not to attend school.