OSCONTARIO SECURITIES COMMISSION

Get the facts about RESPs before you invest

Saving for your child’s education

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 1www.osc.gov.on.ca

CONTENTS

What is an RESP? 2

Federal grants can help you save even more 2

What types of RESPs are available? 3

Choosing an RESP 3

Before you invest 6

How the OSC can help 6

A good education is a goal most parentshave for their children. But the risingcost of post-secondary education hasmany parents concerned about whetherthey will be able to afford to send theirchildren to college or university.

Registered Education Savings Plans(RESPs) can be an effective way to savebecause they offer tax benefits andallow you to take advantage of federalgovernment grants. There are differentkinds of RESPs to choose from, so it’swise to shop around to find the planthat best meets your needs.

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 2www.osc.gov.on.ca

What is an RESP?

An RESP is a special account to help people savefor education after high school. The money earnedin an RESP isn’t taxed until it is withdrawn. You canopen an RESP for a child, yourself or anotheradult. This person is called your “beneficiary”.

Making contributionsThe lifetime contribution limit for eachbeneficiary is $50,000. If you contribute morethan this, you may have to pay a tax on the excessamount. Unlike Registered Retirement SavingsPlans (RRSPs), you can’t deduct RESPcontributions from your taxes.

The number of years you can contribute dependson the plan, but it is usually between 18 and 22years. An RESP can stay open for up to 36 years.

Receiving paymentsOnce your beneficiary is enrolled in a qualifyingeducational program, they can start receivingpayments from the plan. These payments aretaxable in the student’s hands. Since moststudents have little or no other income, they willlikely pay little or no tax.

If your beneficiary does not go on to education after high schoolYou have a few options. Your plan may allow youto choose another beneficiary. In some cases,you can transfer the earnings to your RRSP. Or,you may be able to withdraw the earnings incash, but you’ll have to pay tax on them. Youhave to return any grants to the government,unless you have a family RESP.

For more information about the taxconsequences of RESPs, visit the CanadaRevenue Agency website at www.cra-arc.gc.ca.

The federal government will matchcontributions to a child’s RESP underthe following grant programs:

� The basic Canada EducationSavings Grant (CESG) will top upyour annual contribution by 20%,up to a maximum of $500 eachyear for each beneficiary. Thelifetime limit for the grant isgenerally $7,200. Additional CESGgrants may be available, dependingon your income.

� The Canada Learning Bond (CLB)provides an additional grant of upto $2,000 per child to help familieswith a modest income. Childrenmust be born after December 31,2003 to qualify.

Adults are not eligible for thesegrants. For more information aboutfederal education savings grants, visit www.canlearn.ca.

FEDERAL GRANTS CAN HELPYOU SAVE EVEN MORE$

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 3www.osc.gov.on.ca

What types of RESPs are available?

Choosing an RESP

There are three basic types of RESPs:individual plans, family plans and group plans.

Anyone can open an individual RESP andanyone can contribute to it. This includesparents, grandparents, aunts, uncles andfriends. You can even contribute to anindividual plan for yourself.

A family RESP can have one or morebeneficiaries, but each beneficiary must berelated to the contributor. The beneficiariesmust be under 21 when they’re named.Contributions can only be made until abeneficiary turns 21.

A group RESP pools the contributions ofmany investors. Contributions are madeaccording to a schedule and are used to buyplan units. The date the plan matures is setat the time of enrolment and is based on thechild’s birth date. When the plan matures,the beneficiary usually shares in the pooledearnings of investors with children the sameage. If your child does not begin post-secondary studies at the same time as therest of the group, the earnings you receivefrom the plan may be affected. And if youdrop out of the plan before it matures, youforfeit all of your earnings to the group.

You can open an RESP through banks,credit unions, mutual fund companies,investment dealers and scholarship plandealers. You’ll need a social insurancenumber (SIN) for yourself and eachbeneficiary to open a plan.

The RESP you choose will depend on howmany beneficiaries you have, how old theyare and what you want to invest in. Thetable inside this brochure is a summary ofthe different kinds of plans available andwhat you need to consider before youinvest. Your RESP provider or financialadviser can give you information aboutspecific plans and help you choose the planthat’s right for you.

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 4www.osc.gov.on.ca

BANKS AND CREDIT UNIONS

� Savings accounts

�GICs�Mutual funds

MUTUAL FUNDCOMPANIES

�Mutual funds

INVESTMENT DEALERS

�T-bills�Bonds�Mutual funds� Stocks

SCHOLARSHIP PLAN DEALERS

In general, a plan must invest infixed income securities, such as T-bills, GICs and bonds.

GIC products are low risk and have fixedreturns. Mutual funds and stocks may offerpotentially greater returns, but they are riskierthan GICs because you can lose some or all ofyour investment if the value falls.

You or your adviser chooses an appropriate mix of investments.

You decide when and how much tocontribute, up to the lifetime limit.

The fees depend on the investments you choose. They may include:

� sales charges if you buy mutual funds� management fees, which could include

trustee fees and administrative fees if youbuy mutual funds. These fees reduce your investment returns.

� commissions if you buy or sell stocks orbonds

There are generally no fees to buy GICs, CanadaSavings Bonds and other deposit products.

Investment options have lower risk andtend to have fixed returns.

All of the investment decisions aremade for you.

If you have an individual or familyplan, you decide when and how muchto contribute, up to the annual andlifetime limits.

If you have a group plan, you will haveto make contributions according to a setschedule, which you determine whenyou open the plan. Your contributionsare pooled with those of other investors.If you miss a contribution to a groupplan, your account may go into defaultand your plan may be terminated. Ifyou are allowed to stay in the plan,you may have to pay extra fees andinterest on the missed payment. Theinterest owing can grow over time toan amount that is difficult to repay.

You can expect to pay:

� enrolment fees� administration fees� investment management fees� depository fees� trustee fees

Most fees are deducted from your earlycontributions, which decreases theearning power of your investment.

(INDIVIDUAL AND FAMILY PLANS) (INDIVIDUAL, FAMILY AND GROUP PLANS)

INVESTMENTOPTIONS

RISK AND RETURN

INVESTMENTDECISIONS

CONTRIBUTIONS

COSTS

RESP PROVIDERS

Chart cont’d on following page.

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 5www.osc.gov.on.ca

BANKS AND CREDIT UNIONS

MUTUAL FUNDCOMPANIES

INVESTMENT DEALERS

SCHOLARSHIP PLAN DEALERS

You can withdraw your contributions at anytime without paying any tax. However, youmay have to return any grants on thosecontributions to the federal government.You can withdraw the earnings if you meetcertain conditions. If you take the money outin cash, you’ll have to pay tax. In some cases,you can reduce or eliminate the tax bytransferring the earnings to your RRSP.

You receive your contributions back, less any fees.

You can transfer the earnings to your RRSP if you have contribution room, or you canwithdraw the earnings in cash, but you’llhave to pay tax.

You have to return any grants to thegovernment, unless you have a family RESP.

These plans may have more restrictionsthan other types of plans on how muchand how often you can makewithdrawals.

Make sure you check the prospectusbefore you invest.

These plans are sold by prospectus, alegal document that describes how theplan works. You have 60 days to reviewthe prospectus. If you change your mind,you can cancel your purchase during thistime at no cost to you.

If you cancel the plan after 60 days, youreceive your contributions back, less thefees. Since substantial fees are paid upfront, the amount of money you getback is always less than what you put in.

If you have an individual or family plan,you can transfer the earnings to yourRRSP if you have contribution room, oryou can withdraw the earnings, butyou’ll have to pay tax.

If you have a group plan, check youragreement with the scholarship trustcompany. You may have to forfeit theearnings if you cancel the plan or yourchild does not go on to post-secondaryeducation.

There are many circumstances that mayresult in your child not beginning post-secondary studies at the same time asthe rest of the group. Find out how thisaffects your plan.

There may be other conditions imposedby the dealer, so it is very important toread and understand the plan’sprospectus before you invest.

You have to return any grants to thegovernment, unless you have a familyRESP.

(INDIVIDUAL AND FAMILY PLANS) (INDIVIDUAL, FAMILY AND GROUP PLANS)

WITHDRAWALS

CANCELLING THE PLAN

RESP PROVIDERS cont’d

ONTARIO SECURITIES COMMISSION SAVING FOR YOUR CHILD’S EDUCATION 6

OSCONTARIO SECURITIES COMMISSION

This brochure is provided for information purposes only. The OSC does not provide financial or legal advice, or endorse any products or services.

© 2008 Ontario Securities CommissionPrinted February 2009

Ask:

� What fees are you expected topay? When do you have to paythem?

� What kinds of post-secondaryprograms qualify?

� When and how will payments bemade from the plan?

� What happens if your beneficiarydoes not go on to post-secondaryeducation? Can you transfer yourRESP to another plan or to otherbeneficiaries?

� What happens if you want tocancel your plan? How easy is it toget your money out? Will youforfeit your earnings?

Make sure you:

� Read all the documents you aregiven about the plan. If you don’tunderstand the plan or theinvestment, don’t invest.

� Get it in writing. Never make aninvestment based on verbalrepresentation.

� Take your time and do yourresearch. Don’t give in to salespressure.

� Check the registration andqualifications of your investmentrepresentative.

BEFORE YOU INVEST!

Contact the OSC before you invest

Telephone: 416-593-8314Toll-free: 1-877-785-1555e-mail: inquiries@osc.gov.on.ca

www.osc.gov.on.ca

Ontario Securities Commission20 Queen Street WestSuite 1900, Box 55Toronto, OntarioM5H 3S8

How the OSC can help

Anyone selling securities or offeringinvestment advice in Ontario must beregistered with the Ontario SecuritiesCommission (OSC), unless they areexempt from this requirement. You cancontact us to check whether someone isregistered. We can investigate complaints,but the best way to protect yourinvestment is to be an informed investor.The OSC does not insure or guaranteeRESP investments.