"Today's youth struggle to find employment"

"Lack of skilled workers" 

"Funding Reduced - Student Debt Load Increases"

• The Rising Costs of Higher Education 
• What is an RESP?
• The Canada Education Savings Grant (CESG) 
• Individual or Pooled RESP
• The Tax Advantages of an RESP
• Investing and Opening an RESP
• Quick Fact Sheet

• An education is one of the most valuable investments you can make. However, in order to provide your children with the best possible future, you have to have the means to pay for it - and post-secondary education is getting more expensive every year. 
• Operating costs, funding cutbacks, soaring tuition fees, and rising enrollments are making the goal of post-secondary education more difficult to achieve. It has been estimated that the cost of a four-year university education (including room and board) is now over $52,000*.
• In the coming years, the costs of post-secondary education promise to rise to extremely high levels. The average cost of one year at a Canadian university, including tuition, books and room and board is estimated to be about $11,500. Assuming a conservative annual rate of increase of 3.5%, including tuition increases and inflation, in 20 years the total cost of a four year education could be close to $80,000. Unless you start saving today, your children may not be able to afford to go to college or university. At TEN STAR, we believe an education is a valuable asset and have added Registered Education Savings Plans (RESPs) to meet the needs of our investors. 

 
• Until recently, few parents opted for RESPs as a savings vehicle for their children's college or university education, as the plans were quite restrictive. In fact, annual contributions were initially limited to $1,500 per year per child, and if the beneficiary did not pursue a post-secondary education, all income earned in the plan over the years would be forfeited. Fortunately, recent changes to Registered Education Savings Plan (RESP) rules have made RESPs much more flexible, and the Canada Education Savings Grant (CESG) introduced in the 1998 Federal Budget adds an extra incentive to open an RESP. 

What is an RESP? 

• An RESP is an investment plan that allows you to save for the beneficiary's post-secondary education. The contributions are invested in your choice of one or more investments. Unlike an RRSP, your contributions do not earn you a tax deduction, but the income on your contributions is sheltered from taxes until it is withdrawn from the plan by the beneficiary. Since the beneficiary is a student when the income is paid to him or her, the applicable taxes should be negligible. Almost all post-secondary education is eligible for assistance through these plans, and an RESP can pay for education-related expenses such as tuition, books and living costs. 
• RESPs are investment plans that help you accumulate money for post-secondary education. Similar to RRSPs, an RESP offers tax-sheltered growth of your investment until the money is withdrawn for the post-secondary education of your child, grandchild or yourself. 
• Unlike an RRSP, there is no accompanying tax deduction, but you can withdraw original contributed capital without penalty. Within an RESP, you can make contributions up to a maximum of $4,000/year and a cumulative total of $42,000 per child. 
• RESPs are more flexible than RRSPs in the types of investments that qualify. For example, there are no foreign content restrictions for RESPs. And there are no age restrictions for enrollment or redemptions; contributions may be made for up to 21 years. All funds must be withdrawn by the 25th year of the plan. 

The Canada Education Savings Grant (CESG) 

• Introduced with the February 1998 Federal Budget, the Canada Education Savings Grant program assists Canadians in saving for their children's education through registered education savings programs (RESPs).
• The two previous federal budgets included measures to make RESPs more attractive:   the annual contribution limits were raised from $1,500 to $4,000 and the lifetime limit from $31,500 to $42,000; and RESPs were made more flexible by allowing contributors to transfer RESP incomes into their RRSPs if the child does not pursue higher education.   Now, these measures have been enhanced:
• The CESG, which is deposited directly into an RESP, is equal to 20% of the annual contributions made to an RESP, to a maximum of $400 per year/per beneficiary to a lifetime maximum of $7,200. The CESG is not included in determining the annual $4,000 or lifetime $42,000 RESP contribution limits. 
• To receive the CESG, you must submit a Social Insurance Number (SIN) for each beneficiary named in the plan to your plan manager. You can apply for a SIN at the local Human Resources Centres of Canada (HRCC), which can be found in the federal government section of your telephone book. 
• Effective January 1, 1998 the federal government will provide an education savings grant, as an added incentive to save for education through RESPs. The grant will be 20% on the first $2,000 in annual contributions for children up to the age of 18 and the maximum annual grant amount is $400 per child. The grant is not counted in calculating the annual or lifetime RESP contribution limits and this amount is provided directly to your plan manager to be invested as per the subscriber's instructions. 
• If the contributor is unable to take advantage of the full Canada Education Savings Grant in one year, grant contribution room can be carried forward to future years up to an annual contribution of $4,000 per child.

 

 
 








This chart illustrates the added-value benefit of the RESP grant. Assuming annual contributions of $2,000 earning 8% per annum for 18 years, the RESP grant would provide an extra $16,000 in plan assets, for a total plan value of more than $97,000.

*This example is used only for the purpose of illustrating the effects of compound growth rates and does not reflect the future value of mutual funds. 

For more detail, please consult the item in this section:Tax-sheltered growth -  a lower tax rate:  How will an RESP work for you? 

• There are two types of RESP available to investors.
• Individual RESPs give you significantly greater control and flexibility than pooled RESPs in a number of key areas. 
• Individual RESPs, such as the one offered by Mutual Fund Companies, are generally considered superior because they give you significantly greater control and flexibility in areas such as investment selection, naming beneficiaries and making contributions and withdrawals.
• Pooled RESPs, do not allow you to decide on how our savings are invested. They also involve various restrictions - which vary from plan to plan - which significantly increase the chance that growth earned will be forfeited and divided among the other children in the pool. Such restrictions can included: having to name beneficiaries under a given age (usually 13) and not being able to interrupt your contribution schedule or access you accumulated contributions. There can even be restrictions regarding how education payments must be received and on academic standards at the post-graduate level.
• Individual RESPs are not subject to such constraints. The only way the growth portion of your plan can be forfeited is if your child does not go on to study at the post-secondary level.

Tax-sheltered growth - a lower tax rate: How will an RESP work for you? 

• An RESP provides two significant tax benefits which non-registered accounts lack.
• First, all interest, dividends and capital gains generated by your investment are allowed to accumulate tax-free, resulting in faster growth. Second, when the growth portion is withdrawn, it is taxed in the students hand and at his or her tax rate - not yours. Since most students have much lower incomes than their parents, this "income-splitting" technique should result in significant tax savings and helps maximize the funds available to pay for post secondary schooling.
• RESP growth can only be withdrawn to pay for post-secondary expenses of the student(s) named as beneficiaries under the plan. However, the contributions made, which are not tax-deductible, may be withdrawn tax-free at any time.
• Maximum annual contributions of $4,000 per year can be made for up to 21 years, for a cumulative maximum of $42,000. All funds in the plan must be withdrawn before the end of the plan's 25th year. 
• Following the February 1997 federal budget, RESPs have become a more attractive education savings vehicle, as some constraints with regard to withdrawing income from these plans has been eased. 
• Under the new rules, if none of the named beneficiaries of the RESP go on to post-secondary education by age 21, and the plan has been in existence for ten years or more, the contributor will be allowed to withdraw the growth portion of the plan (that is the income earned from the contributions, whether it be interest, dividends or capital gains income) and transfer it to his or her RRSP, or his or her spouse's RRSP. The contributor can transfer up to $40,000 of the growth portion as long as he or she has sufficient unused RRSP contribution room. If the RESP income cannot be fully offset by an RRSP transfer, a tax of 20%, in addition to regular taxes will be applied to the excess withdrawal. 

• Start an investment plan of your choice and if no one qualifies for post-secondary education you get to keep the profit for other reasons, such as weddings or helping your children with a purchase of a home. You can minimize taxes through capital gains and dividends or you can open your investment plan in trust for your children. 
•   Although you can choose any investments a professionally managed diversified investment fund would probably be your best choice. 
•   Please call TEN STAR to work out a plan to suit your particular situation. 

How do I Start an RESP?

Setting up and maintaining an RESP is a simple process. Like all Mutual and Segregated fund accounts, there is no fee to open your plan and no annual maintenance fee. Arrangements with your TEN STAR representative will cover commissions and proper paperwork which varies depending on the company used.  As independent brokers we are not tied to any one company but can search the market for you to get the best.  We want your money to go to work for you right away. As the subscriber, you complete the needed RESP enrollment form and the Canadian Education Savings Grant enrollment form, listing important information about yourself, the beneficiary, and your investment objectives and choices. Your representative will help complete these for you.  There are no age restrictions on the beneficiary and the beneficiary does not have to be related to the contributor. The fund company will notify the future student (and, if under 19 years of age, the parent or legal guardian) that an RESP has been created for him or her. 

How much can I contribute?
You can contribute up to $4,000 annually per beneficiary, up to a total lifetime limit of $42,000 per beneficiary. 

Who is eligible to contribute?
Parents, grandparents, aunts and uncles, other family members and anyone else who wants to contribute to a child's education can participate. 

Are the contributions tax deductible?
Unlike a contribution to your RRSP, contributions to an RESP are not tax deductible. However, the money inside an RESP grows tax-free. And, when the money is withdrawn, tax applies only to the growth of the account, not the principal contributions. In addition, when the money is withdrawn for post-secondary education use, the withdrawals are taxed at the beneficiary's (usually your child's) marginal tax rate. Since students typically have little or no income, they will owe little or no tax on the income withdrawn from the Plan. 

Is there a deadline for contributing?
You can set up and contribute to an RESP at any time of year, up to the annual maximum of $4,000 per beneficiary. 

Are there foreign content restrictions?
There are no restrictions on investing in foreign securities within an RESP. 

How does the new Canada Education Savings Grant work?
In the 1998 Federal Budget, the government is proposing to provide a grant on RESP contributions. The grant will be 20% on the first $2000 in annual contributions for children up to and including age 17. The maximum annual grant will be $400 per child to a maximum lifetime limit of $7,200. Contributions for children aged 16 and 17 are eligible for grants only if contributions of at least $300 per year have been made in any four years before the child reaches age 16, or a minimum of $4000 has been contributed before the year in which the child reaches age 16. 

What happens if I can't take advantage of the CESG in a given year?
Grant contribution room can be 'carried forward' to future years. For example, if parents contribute $1,000 in a particular year, they can carry forward $1,000 in grant contribution room to the next year. They could then receive the CESG based on 20% of $3000 ($2000 in current year + $1000 carried forward) or $600 per beneficiary. 

How are the withdrawals for post-secondary education taxed?
If the beneficiary is attending an eligible post-secondary institution, the growth portion of the withdrawal is taxable at the marginal tax rate of the beneficiary (who normally has a lower tax rate than the subscriber). 

What happens if my child doesn't pursue post-secondary education?
There are a number of options in this case. Most RESPs gives you the option of designating another child as beneficiary. If no other child is named, contributions to the plan are returned to the subscriber. Subject to certain restrictions, the growth of the plan can be transferred into RRSPs. The lifetime limit is $40,000 provided there is available contribution room within the RRSP. Or, you can receive the investment income directly, subject to an additional 20% tax over your normal tax rate. 

At TEN STAR Group, we believe that the value of a child's education should never be underestimated. Investing in that education is one of the greatest gifts you can give to your children. While we have attempted to answer the most frequently asked questions regarding RESPs, we recommend that you speak with your financial advisor concerning all aspects of your education savings and investment program.