We all know about RESPs. A “subscriber” makes a contribution to the savings plan and the government adds “free money” which will all accumulate tax free and be used for post-secondary education. I’m not going to go into great detail about RESPs because there are numerous sites which will explain how they work. I’ve included a couple of links if you need a primer.
If you think you can’t afford an RESP, I would encourage you to read more about the plans. For families of modest incomes, the government may contribute money without any contribution on your end.
My kid is disabled. How could be RESPs be relevant to us?
There are a few points that are relevant to autistic kids that should be considered.
Firstly, they may be able to attend post-secondary education as a part time student and still qualify for full time benefits.
Plans entered into after February 20, 1990, may include or be amended to include a provision to allow a part-time student with a disability to qualify for Educational Assistance Payments (EAP). The requirement that a beneficiary be enrolled on a full-time basis will not apply where the beneficiary cannot reasonably be expected to be enrolled as a full-time student because of a mental or physical impairment. A medical doctor or a medical practitioner, such as an optometrist, audiologist, psychologist, or occupational therapist, as applicable, must certify in writing that the beneficiary has such an impairment. Before February 20, 1990, there were no restrictions on part-time studies and the prohibition on payments of EAPs, unless the student is enrolled full-time as described in 18, does not apply to such plans.
What if I don’t think my child will ever attend university?
The penalties if your child does not attend post-secondary education are steep. In fact the penalties are so steep that you would have been much better off if you had never opened an RESP.
A lower risk alternative is the new Tax Free Savings Account (TFSA). You won’t receive any government grants or bonds, but you will retain ultimate flexibility of your money. There is a deposit limit of $5,500 a year for each individual. Each parent may open an account for a total contribution of $11,000 per year. All funds grow in the fund tax-free, can be withdrawn tax-free, and can be repaid back into the plan.
If you don’t know if your child will ever attend post-secondary education and have another typical child, then you may consider a family plan. Contributions and “free money” for both kids will accumulate in the one plan and may be used by either child for future education. Note that a family plan is not eligible for the extension as explained in the following paragraph.
When does the plan need to be terminated?
Ordinarily an RESP must be terminated on or before the last day of the 25th year following the year in which the plan was entered into. However, if the beneficiary is eligible for the disability tax credit for the 21st year following the year in which the plan was opened and he or she is in a non-family plan, the maximum period during which the RESP may be in existence can be extended to 30 years, if your existing plan provides for it.