A Registered Education Savings Plan (RESP) is a Canadian government-supported savings account designed specifically to help families save for a child’s post-secondary education.
An RESP account helps you to grow education savings faster by combining tax-deferred investment growth with government grants. Any growth in the account – including investment earnings and grants – is fully reinvested without being taxed until the money is withdrawn.
Who can open an RESP?
Anyone can open an RESP – parents, grandparents, aunts, uncles, even friends of the family who want to help out. The person who opens the account is called a subscriber, and the student is the beneficiary. An adult planning to go back to school can open an RESP for themselves, however, government grants only apply to children. Both the subscriber and beneficiary need to have a Social Insurance Number (SIN) to open an RESP, and both must be Canadian residents.
There’s no minimum age to become a beneficiary, which is why many parents open an RESP shortly after their child is born. An RESP helps provide some structure to education planning by separating education savings from everyday spending and encouraging consistent long-term contributions up to $50,000 per child.
What are the benefits of an RESP?
- Government grants. Your RESP contributions may qualify for the Canada Education Savings Grant (CESG). Typically, the CESG adds 20% to the first $2,500 contributed each year – up to $500 annually, and a maximum of $7,200 per child. An RESP beneficiary may also qualify for the Canada Learning Bond (CLB), and other educational incentives depending on their province.
- Tax-deferred growth. The money inside an RESP can be invested in things like ETFs, mutual funds, stocks, or GICs – and you don’t pay tax on investment growth while it stays in the plan. When money is withdrawn from the RESP to help fund the student’s education, investment growth and grants are taxed as part of the student’s earnings.
- Flexibility for different education paths. The funds in an RESP can be used to help a child fund their post-secondary education at eligible programs in Canada and abroad, including university or college programs, trade schools, and apprenticeships. Qualifying expenses include tuition and compulsory fees, school supplies, living expenses, technology and equipment and transportation.
What if an RESP isn’t used for school?
If you have an RESP and your child isn’t going to post-secondary school there are a few options for the funds in the account. You can choose to:
- Name another beneficiary, like a sibling, to use the available money for their education costs.
- Close the RESP, and have your original contributions returned to you. While you won’t pay tax on your contributions, you will be taxed on investment growth and will need to repay any government grants received.
- Transfer the RESP to a Registered Retirement Savings Plan (RRSP), if the rules of your RRSP allow for this kind of transfer. If you’re able to do so, transferring your RESP to an RRSP may allow you to defer paying taxes on investment growth.
An RESP can be left open for up to 36 years, which means that you’ve got some time to consider the alternatives and find the best fit for your family. While a financial advisor can help you determine the right option for you, an RESP works best when it’s used to save for post-secondary education.
Looking for other savings options? Learn more about Tax-Free Savings Accounts (TFSAs), and Registered Retirement Savings Accounts (RRSPs).