Now that you have set up a Registered Education Savings Plan (RESP), there are many rules that govern how much you can contribute, how often you can contribute, and various restrictions. The rules that govern your RESP contributions will be determined according to the type of RESP account (Family, Individual, or Group) that you have opened. These rules are outlined in the following sections.
Family and Individual RESP contribution rules
For Family and Individual RESP accounts the contribution rules are essentially the same. Listed below are the general rules governing contributions:
- Subscriber contributions to an RESP cannot be deducted from his/her income on his/her income tax return.
- If a subscriber borrows to make a contribution to an RESP, he/she cannot deduct the loan interest cost from his/her income on his/her income tax return.
- Contributions to a Family RESP can be made for beneficiaries who are 30 years of age or younger.
- There is no beneficiary age restriction for contributions to an Individual RESP.
- For 2007 and later years, there is no annual maximum limit to Family or Individual RESP accounts, other than the plan lifetime maximum of $50,000.00, per beneficiary. Thus, subscribers could contribute nothing in a year, or make total one-time contributions equal to $50,000.00.
- For Family and Individual RESP accounts, subscribers are not required to make minimum annual contributions. In fact contributions can be skipped for any given calendar year.
- Government grants and income earned by the RESP are not included when determining if the lifetime limit has been exceeded.
- RESP contributions to a Family or Individual RESP are eligible for a 20% Canada Education Savings Grant (CESG) on the first $2,500 of contributions, per beneficiary, in a calendar year. The maximum CESG available in each calendar year is $500.00 per beneficiary. (Note: Because the maximum CESG is $500.00 per year, contributions greater than $2,500.00 cannot qualify for the CESG grants.)
- The maximum lifetime CESG grant per beneficiary is $7,200.00.
- Children from low-income families may be eligible for additional government contributions in the form of an additional CESG grant, a Canada Learning Bond, or provincial programs. See our section Canada Education Savings Grants (CESG) for more information.
- For RESP beneficiaries that are 15 years of age and older, there are certain restrictions on contributions qualifying for CESG grants. See our section Canada Education Savings Grants (CESG) for more information.
- To maximize the RESP receiving the lifetime maximum $7,200, per RESP beneficiary, in CESG grants, subscribers must contribute at least $2,500, per RESP beneficiary each year from birth to the year that the beneficiary attains 15 years of age, or contribute $5,000 per year and claim the maximum $500.00 CESG grant and an additional $500.00 CESG grant for unclaimed CESG contribution room.
- The deadline for RESP contributions is December 31 of each calendar year.
- Contributions in excess of the lifetime $50,000 limit per beneficiary are assessed as a tax. The tax penalty is calculated as 1% per month, on the excess contribution that is not withdrawn by the end of the month.
- In calculating the excess contributions the Canada Revenue Agency (CRA) does include any withdrawn amounts as contributions for the beneficiary, even though they have been withdrawn. For example, if the lifetime contribution limit has been attained, a beneficiary cannot withdraw $5,000 and then have the subscriber contribute another $5,000 to the RESP.
- According to the CRA, an excess contribution occurs at the end of a month when the total of all contributions made by all subscribers to all RESPs for a beneficiary is more than the lifetime limit for that beneficiary.
Group RESP contribution rules
If you open a Group RESP account, then your contribution amounts and frequency will be set to a certain schedule, which you determine when you open the plan. Your contributions will be pooled with those of other plan subscribers. If you miss a scheduled contribution to a Group RESP, your account may go into default and your RESP may be cancelled. If you are allowed to stay in the Group plan, you may be required to pay extra fees and interest on the missed contribution. The interest owing can increase over time and become difficult to repay. Make sure that you fully understand your contribution obligations before opening a Group RESP.