Families wishing to finance the education of older children got a break this year, when the 2008 federal budget increased the time limits for registered education saving plans by 10 years.

The increased RESP lifespan allows families to make contributions to such plans for 31 years for beneficiaries up to 31 years of age. An RESP can remain open for 35 years.

Previously, RESP contributions could be made for only 21 years, with the account remaining open for up to 25 years. No contributions could be made to a family plan for a beneficiary who was 21 years of age or older.

The lifespan extension provides additional flexibility for families saving for their children’s education, and benefits students who may wish to finance post-secondary education beyond age 25 — whether they are staying in school longer or choosing to return to university after a stint in the workforce.

“Making the extension to 35 years means parents won’t have to worry as much about the time horizon, especially if they have big age gaps between children in a family-plan RESP,” says Jason Safar, partner with PricewaterhouseCoopers LLP in Hamilton, Ont. “When previously a plan may have been collapsed, it can now remain open for the second child and reduce the administrative burden of opening a new plan.”

RESPs have a lifetime contribution limit of $50,000, which was increased from $42,000 in 2007. The annual contribution limit of $4,000 has been eliminated.

These improvements — and the Canada education savings grant — are good reasons to remind your clients of the benefits of RESPs.

Under the CESG program, the federal government contributes an additional 20% of the planholder’s annual contribution, up to $2,500 a year. A carry-forward provision allows contributors to collect up to $5,000 in grants missed in previous years. There is a lifetime limit of $7,200 in CESG grants.

The Canada learning bond is an additional grant for children of low-income families. The CLB provides a one-time initial grant of $500 and additional grants of $100 a year until the child reaches age 15. The CLB is for families who qualify for the national child benefit supplement.

Clients who live in Alberta may qualify for further grants under the Alberta Centennial Education Savings Plan.

“Right now is a good time of the year to have RESP discussions with your clients,” says David Birkbeck, head of registered products strategy with Royal Bank of Canada in Toronto. “If clients don’t contribute by yearend, they could miss out on some of the government grant money. Unlike an RRSP, RESPs work on a calendar-year basis, and clients should be reminded of that.”

RESP contributions are not tax-deductible and, therefore, are not taxed upon withdrawal.

Anyone can open an RESP. There are three general types of RESPs from which to choose:

> Family Plans. In a family plan, one or more children can be named as a beneficiary of the RESP, but they must be related to the subscriber; they can be biological children, adopted children or grandchildren.

> Individual Plan. This is for one beneficiary, who does not have to be related to the subscriber.

> Group Plan. Group-plan dealers offer and administer group plans, and each plan has its own rules. These dealers are usually required to invest the money in low-risk securities such as bonds, treasury bills and guaranteed income certificates. Group-plan members sign a contract agreeing to make regular payments into the plan over a specified period. In group plans only, members risk losing their contributions if their child does not attend a post-secondary institution; their portion is redirected to other members.

Most financial institutions can set up payment plans for clients who want to make regular payments without being locked into a group plan. “A lot of people like the convenience of regular savings,” says Birkbeck. “It is a great way to set aside money from each paycheque as well as avoid scraping up a lump sum at the end of the year, which can be difficult.”

Clients should also be reminded of the restrictions on redeeming an RESP. In order for a child to receive payments from an RESP, he or she must be enrolled in a qualifying post-secondary program.

But if the child decides not to continue after high school, there are options: with the new extended time limit, clients can wait a few years to see if their child changes his or her mind, or they can use the money for another child.’

@page_break@ Parents can also transfer the money into an RRSP if there is room or withdraw the cash tax-free, but they would have to repay the grant portion. IE