Free education for your children?

Cathy Duval |

Free education for your children?

Most of us have heard of the Registered Education Savings Plan (RESP)** offered by most Canadian banks. We already know that for every dollar that is contributed to your child or grand-child's RESP, the government can add a grant of 30%, or even more in certain cases.



However, what you may not be aware of is that, at the end of the program, you may withdraw all the money that you have invested in the RESP, tax-free**. As soon as your child submits his first proof as a full time student in a post-secondary institution, he can withdraw amounts quarterly to finance their studies. These withdrawals consist of government grants and accumulated returns. As the RESP contributor, you may then withdraw all of the contributions you have made.

Here is an example of Mr. & Mrs. Sansoucy that have together contributed $2,000 a year, for a total of 15 years, in an RESP for each of their 3 children:


At the end of the 15 years, the value of their RESP amounts to $181,552:

This consists of $90,000 of their own contributions (15 years * 2,000$ * 3 children) and

$27,000 of government grants (30% * $90,000)

We can not forget to consider a moderate return of 6% on all their contributions and grants, which amounts to $64,552 over 15 years.

As soon as the first child starts its post-secondary eduction, Mr. & Mrs. Sansoucy will be able to recuperate all the contributions they have made for that child, that is $30,000. In a similar fashion, once all 3 children will have started their post-secondary education, M. & Mrs. Sansouci will be able to recuperate all of their $90,000 contributions, tax-free**. Thus, the children will use only the government grants and the accumulated returns which total $90,552 or $30,517 per child. (It should be noted however, that any returns earned in such an account will be taxable in the child's name). As a result, in this case, the education of their children was financed 100% by the government.

It should also be mentioned that contrary to a Registed Retirement Savings Account (RRSP), it is not possible to accumulate unused contributions from the past and report them in the future. This is why it is important to begin planning for an RESP as soon as your children are born. You want to be able to benefit from the maximum amount of government grants.

Do not hesitate to contact me to obtain more information but please keep in mind that the deadline for contributing to an RESP is December 31st and not the first 60 days of the years as is the case with your RRSP.

**Certain conditions may apply