RESPs, CESGs, and CLBs: What are these?

If you’re a Canadian citizen and you’re trying to save up for your child’s future education, there are a number of options you can use. Among these options are heritage RESPs, CLBs, and CESGs.

Registered Education Savings Plan (RESPs)

A registered education savings plan, or RESP, is arguably the most popular educational savings plan in Canada. When your child starts his or her post-secondary education, you can start withdrawing funds from the RESPs. Such funds are called educational assistance payment (EAPs).

Under RESPs, remember that:
• Your contributions are tax free. Meanwhile, investment earnings are taxed once you withdraw them from the plan.
• If your child is younger than 18 years, the government provides grants or bonds. If you’re lucky enough, provincial governments may contribute too.
RESPs provide a wide range of investment options such as stocks, bonds, mutual funds, and GICs, among other. They can either let you choose your investments or invest your money on your behalf.
• Your child must be enrolled full- or part-time in a qualifying education program before he or she can take money out of the RESP.
• You can keep the RESP open for as long as 36 years.

Canada Education Savings Grants (CESGs)
Meanwhile, Canada Education Savings Grants (CESGs) are funds that the Canadian government adds to an RESP. The payments in this grant depend upon the contributions you have made into the RESP.

Under CESGs, remember that:
• Although there are no fees for CESGs, some RESP provider charge service or administrations fees.
• You will need to acquire Social Insurance Number (SIN) for your child. There are also no fees associated with getting a SIN. However, you have to provide certain documents.
• You cannot get CESGs without RESPs, so set up an account first.
• You can receive CESGs only on the first $2,500 in contributions per year.
• The CESG can be shared with a sibling of the beneficiary if the beneficiary decides not to continue post-secondary studies.
• You have to return the grant to the government if it is not used by any beneficiary.

Canada Learning Bonds (CLBs)
Just like CESGs, Canada Learning Bonds (CLBs) are given by the government to an heritage RESP to further aid the subscriber save for the beneficiary’s future education. The total amount that the government deposits can be as much as $2,000. CLBs do not affect any other benefits that you or a child receives.
Under CLBs, remember that:
• The child will receive $500 in the first year of his or her eligibility for the bonds and $100 for each year he or she remains eligible until he or she reaches 15 years old.
• The child can still get CLBs in an RESP even if you do not contribute any money into the plan.
• Not all RESP accounts receive CLBs, so ask your prospective heritage RESP provider offers the service before signing up for an account.
• If your child is already named a beneficiary in an RESP but still doesn’t receive CLBs, verify the child’s eligibility for the incentive with your RESP provider and apply for it.