Adrian Mastracci, fee-only investment counsel says "Contributions to RESPs give children a giant leg up pursuing their education."

Vancouver, BC (September 18, 2002): Parents and grandparents are very attentive about educational pursuits for their children and grandchildren.

Adrian Mastracci, "fee-only" investment counsel & financial advisor with Vancouver based KCM Wealth Management, comments, "Parents and grandparents receive great satisfaction and take pride in watching their children and grandchildren succeed. Assisting youngsters in achieving their lifelong goals is a marathon worth participating in."

"Our children are full of aspirations. One vehicle that gives them a giant leg up on post-secondary educational pursuits is commencing regular contributions to a Registered Education Savings Plan (RESP) as early as possible," Mastracci notes, "While post secondary education is seen as key to a wider choice of career opportunities, it has become expensive and future costs are expected to escalate.

Mastracci says, "It's not unusual today to allocate $30,000 to $50,000 to a university degree. But let's imagine the costs 10 to 20 years from now, especially if education expenses rise faster than inflation. This is where an RESP can play a very significant role."

"The RESP benefit is that income (interest, dividends and capital gains) generated on investments within the plan grow tax-free until withdrawn. This allows the portfolio to accumulate faster than similar investments held outside the RESP," comments Mastracci, "When the funds are withdrawn for educational pursuits, the income is taxed in the child's hands who is likely to be in a low tax bracket."

Mastracci outlines some important RESP considerations:

• The subscriber is the individual who enters into an RESP contract with a financial institution and names one or more children as beneficiaries for whom contributions will be made.
• Parents, grandparents, relatives and friends may deposit a combined total of $4,000 per year into RESP's for the benefit of a particular child who becomes a beneficiary of the RESP. The lifetime deposit maximum is $42,000 per child.
• Be mindful of exceeding the contribution limits, both the annual and lifetime maximum per child. They will attract a penalty for each month that you are offside. This is most likely to occur when there are multiple RESP's set up for the same child.
• RESP contributions are made on the calendar year basis only. There is no carry forward provision if you skip a year.
• You are encouraged to make the contribution as early in the calendar year as possible.
• Many financial institutions offer RESP's for a single child, and family plans where you can name two or more beneficiaries provided they are related to the subscriber by blood or adoption.
• Blood lines include children and grandchildren but do not include nieces or nephews.
• Only one of the children in a family RESP has to pursue post-secondary education and all the income can be paid out to that child.
• Contributions can generally be made for 22 years to a family plan. However, RESP's must be terminated by the end of the 26th year.
• The length of time that an RESP is active permits a long-term investment perspective. However, remember that the ending strategy is to pay out the funds over time, often over a four year period.
• There is no restriction on the type of RESP investment, unless the financial institution does not permit it. Many RESP's offered are of the self-directed variety.
• Choose RESP investments carefully and be cognizant of incurring capital losses within the RESP. They become real losses as there is no offset for tax purposes against capital gains.
• The recently introduced Canada Education Savings Grant (CESG) by the federal government matches 20% of your annual RESP contribution to a maximum of $400 per year per child. The maximum lifetime grant per child is $7,200.
• RESP contributions are not deductible for tax purposes from the subscriber's income. Similarly, the interest paid on money borrowed to contribute to an RESP is also not deductible.
• Capital contributions may be withdrawn tax-free from the RESP at any time. However, a portion of the CESG may have to be repaid when contributions are withdrawn.
• The income in the RESP grows tax-sheltered and is paid out in the form of Educational Assistance Payments (EAP) to qualifying beneficiaries who attend an accredited post-secondary institution.
• The EAP's are taxed in the hands of the beneficiaries. In most instances, there will be little or no tax to pay because the student is often in the lowest tax bracket.
• The post-secondary educational institutions that qualify for EAP's are not limited to universities and colleges. They include other programs that furnish someone with or improve occupation skills.
• You can inquire with the federal government if a particular school qualifies. Some schools outside of Canada also qualify.
• The subscriber has control over all the EAP's and withdrawals made from the RESP.
• Where the child does not pursue post-secondary education, another beneficiary can usually be named. However, in order to keep the CESG, the new beneficiary must be under 21 years of age and either the new beneficiary is a brother or sister of the former beneficiary, or both the new and former beneficiaries are under 21 years of age and are related to the subscriber.
• If the child does not pursue post-secondary education or does not attend a qualifying institution, and there is no other beneficiary, the subscriber may withdraw the earnings when specific requirements are met. The income remaining in the RESP after the EAP's have been made can be transferred from the RESP to your RRSP, or your spouse's RRSP, up to a limit of $50,000 or the available RRSP contribution room limit, whichever is the lesser.

"However, the RESP is not to be confused with the various scholarship plans also available," notes Mastracci, "I don't recommend the scholarship plans to clients because they are too restrictive."

Mastracci comments, "RESP's are still in their infancy, but they offer considerable flexibility. I see a trend that will make them much more important. Today, the largest family plans that I am aware of are close to the $100,000 area."

"Parents, grandparents, relatives and friends can assist a child in a very meaningful way to fund educational pursuits," Mastracci summarizes, "As an example, contributing $8,000 per year to a family RESP will accumulate just over $120,000 after 10 years when invested at 7% per year, inclusive of the grant. This will definitely assist in achieving educational goals."

"Contact your investment professional and devise a game plan to assist each child you care for," concludes Mastracci, "Take the time to get to know how the RESP can help, and pay close attention to investment strategy. Assisting in funding a child's education is clearly one of the best investments you can make. It will pay off in spades."