The RESP Book, authored by Mike Holman, is a just-published guide to registered education savings plans (RESPs). I set up an RESP years ago but this book was a nice refresher, reminding me of several aspects I had forgotten about.
It’s a slim volume. Yet, for setting up and using RESPs, this guide does appear to be complete.It wouldmake a useful addition to the book shelf as a reference for RESPs in their current form. One thing perhaps useful to include: a comparison of the benefits to making contributing to RESPs versus RRSPs, TFSAs, paying down debt, etc.
The RESP Book, by Mike Holman
1. How much to contribute to RESP:Studies published by financial institutions estimate the cost of a four-year degree in excess of $130,000. The author says RESP saving requirements will be less than these scare reports suggest, especially if the child lives at home and/or works part-time.
2. Individual vs. family RESPs:Funds can be transferred between individual RESPs so there might appear to be no advantage to having a family RESP.But a family RESP does have the advantage of reducing account fees and paper burden.
3. Withdrawal limits:Once a child is enrolled, the parent (or sponsor) can withdraw funds for nearly any expense. There are no limits on withdrawals except for a $5,000 ceiling in the first 13 weeks on Educational Assistance Payments (EAPs) paymentsout of accumulated income, i.e. grants plus interest. The author suggests cleaning out the RESP in the second year, or as much as the institution will allow.
4. Withdrawals and taxes:Only payments from the plans accumulated income (EAPs) are taxable to the student, so disburse them in years when the child has low taxable income. In years the child has high taxable income from a summer job etc., disburse payments from the contributions portion, which is not taxable.
5. Collapsing an RESP:If accumulated income remains in the RESP after graduation, parents have up to six months to distribute them as EAPs to the child. This would cost less than the parent collapsing the plan and taking the accumulated income payment (AIP) at their higher tax rate plus the 20% penalty.