A Registered Education Savings Plan (RESP) is a tax-advantaged investment account designed to help parents and guardians save for a child’s post-secondary education in Canada. It allows contributions to grow tax-free and provides access to government grants, making it a powerful savings tool.
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How RESPs Work
RESPs are opened by a “subscriber” (typically a parent or guardian) for a “beneficiary” (the child). Contributions can be made up to a lifetime maximum of $50,000 per child, though they are not tax-deductible. Investments within the RESP, such as mutual funds, stocks, and GICs, grow tax-free.
When the child enrolls in post-secondary education, they can withdraw funds as Educational Assistance Payments (EAPs). These payments consist of investment earnings and government grants, which are taxed in the hands of the student—often at a low or zero tax rate due to their limited income.
Government Grants and Benefits
One of the biggest advantages of an RESP is access to government incentives, such as:
- Canada Education Savings Grant (CESG): Matches 20% of annual contributions up to $2,500, with a maximum grant of $7,200 per child.
- Canada Learning Bond (CLB): Provides up to $2,000 for low-income families, even without contributions.
- Provincial Grants: Some provinces offer additional grants, such as the Quebec Education Savings Incentive (QESI).
Types of RESPs
- Individual Plan: For one beneficiary, flexible in terms of contributions and withdrawals.
- Family Plan: Allows multiple beneficiaries, ideal for families with more than one child.
- Group Plan: Managed by financial institutions with structured contribution schedules.
Key Considerations
- If the child doesn’t pursue post-secondary education, options include transferring up to $50,000 to an RRSP, withdrawing funds with a penalty, or designating another beneficiary.
- The RESP must be closed by 35 years after opening.
By starting early and maximizing contributions, an RESP can significantly ease the financial burden of education.