RESP ADVISOR GUIDE. How to help your clients make the most of their education savings plans

Transcription

1 RESP ADVISOR GUIDE How to help your clients make the most of their education savings plans

2 SECTIONS 1 What is an RESP? 1 2 Family Plans vs. Individual Plans What s the difference? And what s right for your client? 1 3 Grants and Incentives Find out which government-sponsored incentives are available and how to apply. 4 Opening an RESP preparing for your client meeting Everything you need to open a Franklin Templeton education savings plan. 5 Contributing to an RESP Learn about lifetime maximums and the special conditions that apply to beneficiaries who are 16 or 17 years old. 6 Transferring an RESP to Franklin Templeton Learn the difference between eligible and ineligible transfers and how to bring your client s RESP to Franklin Templeton. 7 Educational Withdrawals How to help your clients withdraw from their RESPs before classes start and what we accept as proof of enrollment. 8 Non-Educational Withdrawals The conditions (and, yes, consequences) of every type of non-educational withdrawal franklintempleton.ca/resp

3 1 WHAT IS AN RESP? Registered Education Savings Plans or RESPs are designed to help Canadians save for their children s post-secondary education. And thanks to government grants, those savings can grow quickly. RESPs offer several benefits The Government of Canada matches 20% of the first $2,500 of contributions per beneficiary per year. That s $500 in government contributions. Unused contribution room carries forward. If there s enough room left, the government will match 20% of the first $5,000 in contributions annually for a maximum of $1,000 in grant. Growth on investments is tax-sheltered. Withdrawals are tax-preferred. Earnings are attributed to the student, who s typically in a lower tax bracket than the contributor. Additional incentives may be available based on family income and province of residency. 2 FAMILY PLANS VS. INDIVIDUAL PLANS There are two types of RESPs: Family Plans and Individual Plans. Family Plan Use this plan if the subscriber is the beneficiary s parent or grandparent. A family plan allows your clients to designate one or more beneficiaries today and to add beneficiaries as their family grows. Features Can only be opened by a subscriber who is related to the beneficiary by blood. (Generally, a blood relationship means the beneficiary is the subscriber s child, grandchild or sibling either by birth or adoption.) Can be opened in trust for multiple beneficiaries. Beneficiaries can share grant and growth at the time of withdrawal. Beneficiaries must be under 21 years old when they are named to the plan (unless they re being carried over from a pre-existing family plan). Many investors choose to open a Family Plan even if they have only one child. Setting up a Family Plan now can make it easier to administer the RESP as your client s family grows. franklintempleton.ca/resp RESP ADVISOR GUIDE 1

4 Sibling Only Family Plan vs. Non-Sibling Only Family Plan Family plans can be split into two categories: sibling only or non-sibling only plans. Sibling Only Plans Just what you think: these are family plans in which all beneficiaries are siblings. Sibling only plans can be awarded any type of grant, assuming the beneficiaries qualify. Non-Sibling Only Plans Family plans in which all beneficiaries are not siblings. Only the basic federal grant can be awarded to these plans. Additional federal and provincial incentives cannot be awarded. If the beneficiaries are not siblings, we recommend you direct your clients toward separate Individual Plans. We often see eligible beneficiaries who miss out on additional grants because they ve been named to non-sibling only family plans. Individual Plan Generally, your clients should use this plan if the beneficiary is not the subscriber s child or grandchild. The subscriber might be an aunt, uncle or friend who wants to save for a loved one. Features Only one beneficiary can be named. There are no age or relationship restrictions. Subscribers can open this plan in trust for anyone, even themselves. 3 GRANTS AND INCENTIVES Canada Education Savings Grant (CESG) and Additional Canada Education Savings Grant (ACESG) The government will match 20% of the first $2,500 in contributions made on behalf of every Canadian child. That s $500 in grant. Carry-Forward Room: Unused contribution room carries forward. If your client didn t contribute last year, they can contribute as much as $5,000 this year to attract $1,000 of grant. Lifetime Maximum: A beneficiary can receive a lifetime maximum of $7,200 CESG. And most children are eligible for grant until the calendar year in which they turn 18. (Refer to the age 16 & 17 rule on the next page.) Modest-income families: Families with modest household incomes may qualify for additional grant or ACESG. Increased grant matching rates of either 10% or 20% are applied to the first $500 of annual contributions. Income thresholds change every year. Visit cra.gc.ca for the latest requirements. 2 RESP ADVISOR GUIDE franklintempleton.ca/resp

5 Canada Learning Bond (CLB) No contributions are needed to attract CLB. Families who are already receiving the Canada Child Benefit can receive a one-time grant of $500. Additional grants of $100 a year are available every year the family remains eligible until the beneficiary turns 15. Altogether, a beneficiary may receive up to $2,000 in CLB. Age 16 & 17 rule Beneficiaries aged 16 or older will not be eligible for grant unless: They ve received a minimum of $2,000 of contributions (that haven t been withdrawn) before January 1st of the year they turn 16. OR They ve received $100 of annual contributions (that haven t been withdrawn) in any four years before January 1st of the year they turn 16. How to apply: Mail or fax us a completed Application for Basic and Additional CESG & CLB. Don t wait to apply. Submit your client s application as soon as you know a beneficiary is eligible. British Columbia Training and Education Savings Grant (BCTESG) No contributions are needed to attract the BCTESG. BCTESG is a one-time grant of $1,200 for BC beneficiaries born on or after January 1, Eligible clients can apply for this grant within a three-year window after the beneficiary s sixth birthday. In order to be eligible to receive the grant, beneficiaries and their custodial parents or legal guardian must be BC residents at the time of the application. How to apply: Mail or fax us a completed Annex D. Québec Education Savings Incentive (QESI) QESI can add up to a lifetime maximum of $3,600 for every beneficiary who lives in Québec. Revenu Québec awards 10% on the first $2,500 in annual contributions. This incentive offers the same carry-forward rule as CESG: If a beneficiary has enough carry-forward room, your clients can contribute as much as $5,000 in a single year to qualify for the 10% match. Beneficiaries from middle-to-lower-income families may qualify for increased rates on the first $500 of annual contributions. Beneficiaries must be Québec residents when they withdraw QESI from their RESPs. How to apply: No application form is required. We ll apply on behalf of beneficiaries who live in Québec. 4 OPENING AN RESP PREPARING FOR YOUR CLIENT MEETING You ll find all the forms you need at franklintempleton.ca/resp. Call us at 1 (800) if you d like us to send you paper copies. franklintempleton.ca/resp RESP ADVISOR GUIDE 3

6 Before you start, ask your clients if the beneficiaries have Social Insurance Numbers. Without a SIN, a beneficiary cannot be named to a plan. How to open an RESP if the subscriber is the child s primary caregiver Opening an individual plan STEP 1: Complete an RESP Application Form STEP 2: Complete an Application for Basic and Additional CESG & CLB STEP 3: (if applicable*) Complete an Annex B *In rare instances the child s primary caregiver and legal guardian are different people. If your client is the primary caregiver but not the legal guardian, we require an Annex B. Opening a family plan Same as above plus STEP 4: (if applicable**) Complete an Annex A Primary Caregiver The primary caregiver (or PCG) is exactly what it sounds like: the person primarily responsible for taking care of the beneficiary. This is usually one of the beneficiary s parents but not always. The PCG is usually the same person who receives the Canada Child Benefit. **An Annex A allows you to apply for grant on behalf of multiple beneficiaries using a single grant application. How to open an RESP if the subscriber is not the child s primary caregiver Opening an individual plan STEP 1: Complete an RESP Application Form STEP 2: Complete an Application for Basic and Additional CESG & CLB STEP 3: Have the child s primary caregiver and legal guardian complete an Annex B Opening a family plan Same as above plus STEP 2: (if applicable**) Complete an Annex A STEP 3: (if applicable***) Complete an Annex B **An Annex A allows you to apply for grant on behalf of multiple beneficiaries using a single grant application. ***If the beneficiaries in the plan are siblings, we require an Annex B. 5 CONTRIBUTING TO AN RESP Your client can make purchases as they go, or they can set up a preauthorized contribution plan when they open the account. 4 RESP ADVISOR GUIDE franklintempleton.ca/resp

7 The government allows up to $50,000 in contributions per beneficiary. The government awards up to $7,200 in basic and additional CESG per beneficiary. Beneficiaries will not be awarded grant on contributions made after December 31st of the year they turn 15 unless they meet the Age 16 & 17 Rule (described on the previous page). Consider setting up a preauthorized contribution (PAC) for your client. It s a low-maintenance way of ensuring your client gets the most out of their RESP. Over-Contributions When a subscriber contributes more than the $50,000 lifetime limit, they re generally required to pay a 1% per month tax on their share of the over-contribution until it s withdrawn. If there are multiple beneficiaries in a family plan, we recommend re-allocating your client s contributions as their children approach 18. This will help your clients maximize their grant and can help them avoid over-contributions. 6 TRANSFERRING AN RESP TO FRANKLIN TEMPLETON Here s how to transfer your client s RESP to Franklin Templeton. Whether the transfer is in cash or in kind, the process is the same. Complete a Form A with your client and mail or fax it to us. If your clients are transferring their plan from another institution to a brand new RESP at Franklin Templeton, we ll also need an RESP application form and the appropriate grant applications. (Refer to the section 5 Opening an RESP.) Eligible Transfers vs. Ineligible Transfers Knowing the difference between eligible and ineligible transfers will help you steer your clients from a decision that might result in over-contributions or grant claw-backs. A transfer is eligible if: The relinquishing and receiving plans have a common beneficiary; OR A beneficiary in the receiving plan is a brother or sister of a beneficiary in the relinquishing plan and the receiving plan is: franklintempleton.ca/resp RESP ADVISOR GUIDE 5

8 A family RESP; OR An individual RESP that was entered into before the year in which the beneficiary turned 21. If those criteria aren t met, it s an ineligible transfer which carries the following consequences: Grant received on the relinquishing account may be returned to the government; AND The receiving plan will assume the contribution history of the relinquishing plan, potentially triggering over-contributions and tax penalties. 7 EDUCATIONAL WITHDRAWALS This is the best part. A beneficiary is attending a post-secondary institution and it s time for your clients to direct their savings towards tuition, text books, rent, phone bills and all those bus tickets that will keep their kids close to home. Here s what we need: 1. A completed RESP Withdrawal Form 2. Proof of enrollment What qualifies as proof of enrollment? The document you use as proof of current enrollment must include the following: Beneficiary Name Student Number Name of the Educational Institution Term or Semester A Letter of Acceptance is NOT proof of enrollment. As long as it has the elements noted above, we ll accept: A letter from the Registrar s Office confirming enrollment A tuition invoice (not past due) A student timetable 6 RESP ADVISOR GUIDE franklintempleton.ca/resp

9 We cannot accept: A Letter of Acceptance or Offer of Admission (conditional or unconditional) Student cards Cashier receipts Bank or credit card statements If your clients are withdrawing for more than one beneficiary, you must submit one withdrawal form and one POE for each student. TWO TYPES OF EDUCATIONAL WITHDRAWALS 1. Educational Assistance Payment (EAP) a withdrawal of grant and growth This is the type of withdrawal we recommend RESP investors make first. EAPs consist of the plan s grant and growth. These withdrawals are attributed to the beneficiary, who is typically in a lower tax bracket than the subscriber. The amount of EAP your clients can withdraw depends on whether the beneficiary is a full-time or part-time student. We strongly recommend your clients deplete the plan s EAP balances before withdrawing their contributions. Contributions can be withdrawn at any time and for any reason. EAP can only be withdrawn penalty-free while a beneficiary is in school. EAP withdrawal limits Student Designation First 13 weeks (from the program s start date) After first 13 weeks Lifetime Grant Withdrawal Limit Full-Time Student $5,000* $20,000+** $7,200 Part-Time Student $2,500 $2,500 per rolling 13-week period $7,200 *A student who takes a break from their studies for more than 12 months is considered a new student upon their return. In that case, the first 13-week rule applies. **This figure changes annually. Check the CRA website for the latest information. 2. Post-Secondary Education (PSE) a withdrawal of contributions There s no limit on PSE withdrawals and there s no tax implication for subscribers or students. Your clients don t have to use PSE withdrawals for tuition. As long as they can produce proof of enrollment, they can spend this money on any of the costs associated with post-secondary education. franklintempleton.ca/resp RESP ADVISOR GUIDE 7

10 8 NON-EDUCATIONAL WITHDRAWALS There are several ways to withdraw from an RESP for non-educational purposes. Here s a look at each type of withdrawal, including the conditions and consequences. What if a beneficiary doesn t attend school? WITHDRAW THE CONTRIBUTIONS: Your clients can withdraw their contributions at any time. But if they withdraw for non-educational purposes, grant money will be returned to the government. How to withdraw: Mail or fax us a completed RESP Withdrawal Form. WITHDRAW THE GROWTH: A non-educational withdrawal of growth is called an Accumulated Income Payment (AIP). This can only be done under the following conditions: The plan has been registered for 10 years; AND All beneficiaries in the plan are at least 21 years old. If the above conditions are met, the subscriber can withdraw the growth in cash (minus withholding taxes and penalties*). *The government applies the following withholding tax rate to AIP cash withdrawals: Withdrawal Amount % of Tax Withheld $0 $5,000 30% (41% in Québec) $5,001 $15,000 40% (50% in Québec) >$15,000 50% (55% in Québec) How to withdraw: Mail or fax us a completed RESP Withdrawal Form. TRANSFER TO AN RRSP If the subscriber has RRSP contribution room and if they meet the AIP requirements above they can transfer the remainder of their RESP to a retirement savings plan without withholding taxes or penalties. How to transfer to an RRSP: Mail or fax us the following: A completed T1171 Waiver A copy of your client s most recent Notice of Assessment 8 RESP ADVISOR GUIDE franklintempleton.ca/resp

11 ADD OR REPLACE A BENEFICIARY In a family plan, contributions, grant and growth can be used by another child. Your client can add another child to their family plan as long as the new beneficiary is 20 years old or younger. But beware: if the new beneficiary isn t a sibling of the existing beneficiary, it may result in loss of additional grant and provincial incentives. In an individual plan, a beneficiary can be replaced at any time. Here s what to keep in mind to avoid overcontributions or a loss of grant: The new beneficiary must be under 21 and a sibling of the beneficiary being replaced; OR Both beneficiaries (old and new) must be under 21 and related to the subscriber by blood or adoption. How to add or replace a beneficiary: Mail or fax us the following: Signature guaranteed letter of direction signed by the subscriber(s). Please include the following information about the new beneficiary: Full name SIN Date of birth Address Relationship to the subscriber Relationship to the existing beneficiaries (if being added to a family plan) Relationship to the beneficiary they are replacing (in an individual plan) Application for Basic and Additional CESG & CLB if the new beneficiary is under 18. franklintempleton.ca/resp RESP ADVISOR GUIDE 9

12 We re here to help Call us at 1 (800) if you have any questions about your client s RESP Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the applicable Fund Facts documents before investing. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the money market funds will be able to maintain their net asset value per security at a constant amount or that the full amount of your investment in the fund(s) will be returned to you. Unit/share values change frequently and past performance may not be repeated. Fiduciary Trust Company of Canada is a wholly owned subsidiary of Franklin Templeton Investments Corp. Franklin Templeton Investments Corp Yonge Street, Suite 900 Toronto, ON M2N OA7 fax (866) (800) Founding Member of The Canadian Coalition for Good Governance Canadian Offices: Calgary Montreal Toronto 2017 Franklin Templeton Investments Corp. All rights reserved. RESP AGE 05/17