Can I Open an RESP for a Child That Isn’t Mine?

Registered Education Savings Plan also known as RESP is a kind of investment that is mainly invested by parents to save for future post-secondary education of the child. Basically, RESP’s are opened for children, but one may open an RESP account easily.

Now, a vital question arises whether you can open an RESP for a child that is not yours. There are no boundaries in opening an RESP account for any child whether it’s your own or niece, nephew, grandchild or a family friend. However, niece and nephew do not count as blood relatives, so they won’t be eligible under family RESP. But u can open an individual RESP account for your nephew. The RESP contributions can be ventured and you can also be eligible for a government grant if certain conditions are met. This means if you make the contributions regularly then it can be a great way to save for post-secondary education over a long period.

However, an RESP account opened without coordinating with the child’s parents can cause confusion and financial penalties.

Basically, the child’s social insurance number will be required which is likely in the hands of the child’s parents, to open and register the account to the child. Every year, 20 % of your contribution matches with the Canada Education Savings Grant (CESG) and to a maximum of $500. There are no minimum contribution limits but, the subscribers need to contribute an annual amount of $2,500 to trigger a grant of $500.

It is to be noted that over-contribution to the plan can also lead to financial penalties. So, having multiple contributors to a plan can require detailed communications among individual contributors. There is a provision that if the child does not go to college or university, the amount can’t be withdrawn but it can be rolled over into an RESP, if there is space.

If a child’s parent is actively contributing to an RESP and also receiving maximum of the grant money, you might put your contributions into your own Tax-Free Savings Account. By doing so, you won’t receive any grant money for your contributions, but the investment can grow and it also can be used tax-free. If you are saving for your future, whether it’s education, a trip or retirement, it is recommended to contact an adviser who can help you plan accordingly.

Retirees or seniors who are maintaining an RESP account for a grandchild should consider the fact that what might happen if they pass away before the RESP is retrieved or exhausted. If they die, an RESP may become part of their estate and be taxed accordingly. So it is necessary to take the advice from an estate specialist about RESP estate planning. So, it is clear from the above explanation that one can easily open an RESP for a child, irrespective of any blood relation with them.