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Five Essential Facts About the CESG and RESPs

The CESG or the Canada Education Savings Grants is the graduated sponsorship of RESPs in the country.

The Canadian government will contribute to individual/family/group savings plans geared toward post-secondary school education, and in the process, will also help augment how much money can be withdrawn through EAPs upon maturity of the education savings plan.

The CESG is an integral component of heritage RESPs in Canada, and so here are five essential facts that you have to know about the Canada Education Savings Grants.

1. You need to provide the beneficiary’s SIN number to the financial institution to be eligible for the grant.

All Canadian citizens are qualified automatically for the CESG. In the event that a Canadian citizen was registered for an RESP but did not have SIN number yet, the money invested in the RESP will be placed in a separate account (in trust) and the balance will be transferred when the SIN number of the beneficiary becomes available.

The SIN number is important for taxation later on, when the EAPs are claimed upon maturity of the savings plan.

If you are dealing with a private company offering scholarship plans, the usual policy is to provide the SIN number of the beneficiary within two years of signing up for the Heritage Education Funds RESP. The company will then be responsible for applying for government grants on behalf of the beneficiary.

2. Income from CESG is calculated different depending on the time the RESP was opened.

If the beneficiary of the RESP was born before January 1, 1998, he/she is eligible for government assistance of up to $400 every year until the year 2006. After 2006, the policies changed again, and the ceiling contribution for individual beneficiaries was increased to $7,200. The maximum amount that you can get from the CESG is $1,000 annually.

3. You can receive CESG payments even if you do not make regular contributions.

Let us say that because of some severe turn of events, you are not able to fulfill your responsibility of contributing to your child’s heritage RESP for a full two years. It sounds bad, right? Well, not really.

The Canadian government will continue providing RESP contributions to your child’s account but only for two years. If after this period you continue to ignore the payment schedule of the RESP under your care, the CESG payments will likely stop, too.

4. Payments from CESG will be given at a later time.

All interests and payments earned from CESG contributions will be available to beneficiaries in their second year of post-secondary school education. On the first year, all EAPs will be derived from the regular contributions of the subscriber of the RESP.

5. CESG payments can be withdrawn when the plan is voided.

In the unlikely event that an RESP expires or is voided, CESG payments will be channeled back by the government and your payments as well, will be returned to you after pertinent fees are deducted from the total. Your closing balance will show you much can be withdrawn after all fees are deducted.

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