What is an RESP?
A Registered Education Savings Plan (RESP) is a savings account designed to help parents save for their children’s post-secondary education.It has the advantage of accumulating tax-free interest as well as allowing for parents to apply for the Canada Education Savings Grant. Contributors as well as Beneficiaries must be Canadian citizens and have a SIN number. Anyone can open an individual RESP for a child, but family RESPs are limited to relatives through blood or adoption only. Different funds may have other rules.
Canada Education Savings Grant: Once the application is met with approval, the government will provide an incentive for contributions to the RESP in the form of a set amount per dollar invested. Rates vary according to family income, but the grant amount for contributors earning over $74,357 is 20 cents per dollar for the first $2,500 invested, making a total yearly grant of $500 possible. A lifetime maximum of $7,200 per beneficiary in government grants is possible.

Are there Different Types of RESPs?
Yes. There are two types of RESP, individual and pooled. Pooled RESPs see the capital from multiple RESPs combined together into a fund that is managed by a central administrator who determines the payouts to all beneficiaries.  Individual RESPs are offered by a number of different institutions such as banks, mutual fund companies and investment brokers, and are often self-directed.
Family RESPs: It is possible to have one RESP account for multiple beneficiaries. Both individual and pooled RESPs can be family accounts. This is often seen as desirable, as different children will often have different educational considerations, and by not keeping the money in different funds, parents have more flexibility to utilize the accumulated money if one child requires more than another. However, in some cases, it is possible to transfer funds from one RESP to another.

What kind of RESP does Campbell & Lee Manage?
Campbell and Lee manages individual RESPs. We do this as a service for our valued clients to give them a greater peace of mind and the convenience of investing in one institution. The capital invested into the RESP is added to the main portfolio with grants, interest and dividends left to the client’s discretion. That is to say, the RESP capital would be invested in the same assets as the main portfolio that has already been tailored to the client’s investment desires. A concern that many contributors invested in equity have is that in the years before the beneficiary needs the RESP money, their investments will show a loss and the RESP’s value will be decreased. Campbell and Lee understands this and will work with clients to lock in gains made in the years before an RESP matures by moving to a more conservative position.

Why use Campbell & Lee instead of a Pooled Fund?
Pooled funds are another option available to those looking to invest in an RESP, but there are risks unique to the pooled format. Because of the nature of a pooled RESP, should the fund have too many investors or if the fund underperforms then the payout to the investors is severely reduced. Pooled funds very rarely invest in equity, usually preferring a more conservative investment style, and it is often the case that should the beneficiary not attend post-secondary education, it is only possible to extract the original capital from the RESP, while the interest and grants would be lost. Pooled RESPS also usually have large management fees and up-front sales commissions to cover marketing costs. Campbell and Lee provides RESPs as a service to existing clients, and so they have no additional costs.

What are the Risks Associated with RESPs?
The risk in losing capital in an RESP depends upon individual investment strategy, but there is the risk of losing the accumulated interest and any government grants if the money is not used by the beneficiary by the 26th year after the account is started. Should a beneficiary not attend a post-secondary institution by the age of 21, the capital and accumulated interest (but not grants) in an RESP can be rolled over into an RRSP for the contributor if the account has existed for at least ten years and all beneficiaries are at least 21 years of age.

What are the Limits on Contributions to an RESP?
RESPs have a lifetime limit of $50,000 per beneficiary. Contributions to an RESP may only be made until the 23rd year of the plan’s existence, or in the case of a family plan, until the 21st birthday of the beneficiary. Also, contributions are not tax-deductible in the same way as RRSP contributions are.

If RESPs are Subject to Taxation, what is the Advantage?
The advantages of an RESP over a traditional savings account are many. The capital stored in an RESP is allowed to grow tax-free, and is not taxed upon its withdrawal. The interest and grants accumulated are taxed upon withdrawal. However, the withdrawn amount of interest and grants is taxed according to the beneficiary’s tax bracket, not the contributor’s, and as students are usually in a significantly lower tax bracket, the beneficiary can keep more money.

How do you get Money Out of an RESP?
The withdrawal process is staggered over the course of the beneficiary’s studies. For the first withdrawal, no more than $5000 can be extracted, but the amount increases after 13 weeks in school (about one semester). A beneficiary can receive Education Assistance Payments (EAPs), which are withdrawals consists of any grants and interest accumulated in the account. In a family RESP, the funds can be distributed any way between the multiple beneficiaries, so long as the $50,000 limit per beneficiary is not exceeded. A common misconception is that RESP money can only be used for tuition. This is not the case, as RESP money can be used on residence fees, textbooks, and any other costs associated with the education. In order withdraw funds the beneficiary must be able to provide a proof of enrolment
Proof of Enrolment: A proof of enrolment is an official document that must be requested from the registrar’s office. Universities often charge a small fee to produce the document.

Quick Advice
Because an RESP must be terminated by the 26th year after it is started, starting the RESP a few years after the beneficiary is born can extend the length of time for which they are eligible to use the money. Also keep in mind that all of the money cannot be withdrawn for post-secondary education purposes at once, it can take several years to extract all of the invested capital. Should the beneficiary start his education in his 25th year, for example, it may be difficult to extract all of the money in an RESP plan started at birth in time before the account must close.

-There is no restriction on foreign content in an RESP, so your portfolio at Campbell & Lee will be suitable.
-Make sure your beneficiary knows to keep receipts from purchasing textbooks, residence and tuition, as they may be audited on how they spent their RESP money.
-If a contributor to an RESP dies, their estate can continue to contribute to the RESP.
-There is no penalty for skipping a year of grants, the limit on grants is a lifetime limit and not a yearly one.  At a grant rate of 20% on the first $2,500 contributed, if a contributor contributes at least $2,500 per year for 15 years, they will have reached the $7,200 limit.   This means that contributors can “skip” a few years and still reach the total grant limit by the time the beneficiary goes to school.

For more information, the Canadian Government websites on RESPs are:
Service Canada site:
http://www.servicecanada.gc.ca/en/goc/resp.shtml
Human Resources and Social Development site:
http://www.hrsdc.gc.ca/en/gateways/nav/top_nav/program/cesg.shtml