The savings incentives are called Canada Education Savings Grants (CESG) and Canada Learning Bonds (CLB). The maximum amount that can be contributed to an RESP per child is $50,000 with no annual maximum but the Government of Canada will only apply CESG credits to the first $2500 contributed per year, each child is eligible for these credits up to the age of 17 although special rules apply between age 15 and 17. If you contriubte $2500 per year the CESG credit you will receive will be $500. The Canada Learning Bond credit is available to modest income famalies and depends on your income. For more information on both CESG credits and CLB credits you can visit the Government of Canada website at http://www.canlearn.ca/eng/saving/resp/index.shtml.

Once your child enrolls in university withdrawals can be made from the amount with proof of enrollemnt. You may withdraw $5000 in the first 13 weeks and any amount after that. Any income earned in the account will be taxed in the childs hands which since the child is in university should amount to little or no income tax being payed depending on the childs income. Contribution amounts are of course withdrawn with no tax implications.

If your child decides not to attend university, the CESG credits can be used for a siblings education or must be returned to the Governemnt of Canada. Any income or contriubtions in the account can also be used for a siblings education or contributions can be withdrawn tax free and up to $50,000 of income can be transferred to your own RRSP account without tax implications.

The savings in this account can grow quite dramatically, if you were to contribute $2500 per year from the time the child is born up to age 17, you would also receive $500 per year in CESG credits. This amount would grow to a staggering $85,485.03 by the time your child is ready to attend university, assuming you were making a 6% return. If you were to contriubte a yearly amount with the goal of maxing out the lifetime limit of $50,000 per child in contriubtions this amount would grow to $102,910.63. As you can see the results speak for themselves! So while your saving to retire early don’t forget to save for your childrens education as well!