To give parents who use Registered Educational Savings Plans to save for their children’s post-secondary education more flexibility in how their kids access the funds for educational needs, the 2008 federal budget proposes to increase by 10 years the current limits on when the money can be contributed and when it must be accessed.

“With people staying in school longer, and with many post-secondary degrees — such as medical or law degrees — requiring years of study, the current RESP time limits were no longer sufficient,” says Jamie Golombek, vice president of taxation and estate planning for AIM Funds Management Inc. of Toronto.

Contributions to a RESP aren’t deductible for income tax purposes and aren’t taxed upon withdrawal. Investment income that builds within the plan is generally included in the income of the plan’s beneficiary upon withdrawal. For each beneficiary of a RESP, there is a lifetime contribution limit of $50,000, but no annual limit on contributions.

The budget proposes that the number of contribution years for a RESP, following the year in which the plan is entered into, be increased from 21 years to 31 years. For single beneficiary RESPs, where the beneficiary qualifies for the Disability Tax Credit, the time limit will increase from 25 years to 35 years.

The deadline for plan termination will also increase by ten years. Previously, a RESP had to be terminated by the end of the year that includes the 25th anniversary of the plan’s opening. Under the budget proposals, that would now change to the 35th year. For DTC beneficiary plans, that time limit will increase from 30 years to 40 years.

As well, the budget proposes that a six-month grace period be allowed for students no longer enrolled in a qualifying program to access Educational Assistance Payments from their plan, provided the beneficiary would have qualified for the payment under EAP regulations. Currently, only beneficiaries who are enrolled in a qualified program can qualify for EAPs. This change, the government says, should allow beneficiaries more flexibility on when they can access funds.

“In the past, some beneficiaries would finish their enrollment, while still having funds left in the plan, which were then not available to them,” Golombek says. “With this change, students who have left their enrollment can still access EAPs up to six months afterwards.”