Insights & EventsWhat is a Registered Education Savings Plan (RESP)?January 03, 2023 • 2 MIN READ
What is a Registered Education Savings Plan (RESP)?
A Registered Education Savings Plan (RESP) is a government-registered savings plan that helps you save for your child’s post-secondary education.
The money that you invest in an RESP grows tax-deferred, and the federal government helps contribute to your savings along the way in the form of education grants.
When your child enrols at a qualifying post-secondary institution and you are ready to withdraw the funds for educational purposes, the payments made using these funds are known as Educational Assistance Payments (EAPs).
Tax is applied to the investment income and government grants received when withdrawn from the RESP, not on the contributions you made using your own funds. These amounts are taxed in the hands of the student, and this usually means little or no tax will be paid, because students typically fall into the lowest tax bracket.
Why invest in a RESP?
- Government Grants: The federal and some provincial governments offer grant and incentive programs ‑ without impacting your RESP contribution room.
- Tax-deferred growth: You can contribute up to $50,0001 per child, and there are no taxes payable on the money earned in an RESP until it’s withdrawn.
- Start sooner, save more: Maximize the amount saved by starting a savings plan sooner. All you need is your child’s Social Insurance Number (SIN).
Important Information & FAQ
- The sooner you start an RESP for your child, the more time your contributions will have the chance to grow.
- The Canada Education Savings Grant (CESG) matches 20% of annual contributions, up to $500 per year
- The matching contributions can continue until the lifetime limit of $7,200 per child has been reached
- Investing your Canada Child Benefit could help you save enough to qualify for the maximum CESG amount
- Canada Education Savings Grant (CESG): The basic Canada Education Savings Grant (CESG) tops up your annual contribution by 20%, up to $500 per beneficiary each year to a lifetime limit of $7,200 per beneficiary. Additional CESG grants may be available, depending on your income. For example, if your net family income is $60,000, and you contribute $2,000 in a year, the government CESG contributes an additional $450 to the child’s RESP.
- Canada Learning Bond (CLB): This grant is available to children born on or after January 1, 2004, whose families are eligible to receive the National Child Benefit Supplement. The Canada Learning Bond (CLB) can add up to $2,000 per child to your RESP.
- Provincial Grants:
- The Québec Education Savings Incentive (QESI) was established to encourage Québec families to save for post-secondary education.
- The British Columbia Training and Education Savings Grant (BCTESG) is a one-time savings incentive to encourage B.C. families to start planning for their children’s education.
Once the grandchildren are born, you can apply for a Social Insurance Number for them, and open an RESP. Although contributions to a registered education savings plan are not tax deductible, there is a tax deferral opportunity as the contributions accumulate tax-free within the plan.
Upon withdrawal, the payments will be taxable in the hands of your grandchild, provided that your grandchild is enrolled full-time or part-time in a qualifying educational program at a qualifying post-secondary educational institution. Your grandchild will likely be in a lower tax bracket than you at the time of withdrawal, and will be able to offset some of the tax liability with tuition and education tax credits, lowering the overall tax burden on these funds.
- There are individual plans and family plans. In an individual plan, the subscriber can be anyone (no need for a blood or adoption relationship), but there can only be one beneficiary. In a family plan, the subscriber can only be a parent or grandparent, and you can have multiple beneficiaries as long as they are related to the subscriber by blood or adoption.
- The total lifetime maximum of RESP contribution is $50,000. Contributions to a beneficiary in an individual plan may be made for up to 31 years after the plan is established. For example, if an individual plan is opened in the year 2000, the last contribution date is December 31, 2031. Contributions to a beneficiary in a family plan may only be made until the date the beneficiary turns 31 years of age. The plan must be closed by December 31st of the 35th year after being opened, eg. an RESP opened in May 2000 must be terminated by December 31st, 2035. A penalty of 1% per month is imposed on excess contributions for each month they remain in the plan.
- Your capital contributions can be withdrawn at any time; however, you cannot withdraw the income of the RESP without tax consequences. For an RESP beneficiary who qualifies for disability tax credit termination date of RESP has been extended from 35 to 45 years.
- Under the Canada Education Savings Grant (CESG) program, the federal government will pay a grant of 20% on the first $2,500 of your annual contributions. The maximum annual grant of $500 (up to $1,000 if there is sufficient unused accumulated grant room) is payable for each year until the end of the calendar year in which the beneficiary turns 17 to a maximum of $7,200 per beneficiary.