Registered education savings plan (RESP)
Help your kids get a great education
Take advantage of government contributions and tax-free savings to help your kids on their way to success.
Grow savings tax-fee
The money in the account grows tax-free and your contributions won’t be taxed when withdrawn.
Receive up to $500 per year for a lifetime total of $7,200 per child from the government.
Withdrawn at a lower tax rate
When the money is withdrawn it is taxed at your kid’s tax rate.
What is an RESP?
An RESP is supported by the federal and some provincial governments. It helps you save money for a child’s future education, where the investments inside the investment account grow tax-free.
There is life-time limit of $50,000 per beneficiary and amounts contributed in excess of this are subject to a penalty tax of 1% per month on the excess until the over-contribution is withdrawn.
How does an RESP work?
- Open an RESP account for one or more beneficiaries (child/children). They must be a Canadian resident and have a valid social insurance number (SIN).
- There’s no minimum amount to start.
- You can set a monthly contribution minimum of $25. You may also qualify for government grants based on your contributions.
- You and your spouse can contribute to one account.
- You may keep an RESP open for up to 35 years (or 40 years if you have a specified plan), so if the child doesn’t pursue education right away, there’s still time.
- When the money is withdrawn for post-secondary education, your own contributions will not be taxed. But grants and growth that accumulated inside the plan are taxed at the student rate. However, since many students have little or no other income, they can usually withdraw the money tax-free.
Who can open an RESP?
Generally, the following people can open an RESP:
How federal grants work
Under the Canadian Education Savings Grant you can contribute up to $50,000 in an RESP, but there are limits to receiving help from the federal government.
Each child can receive a maximum of $500 per year from the Canada Education Savings Grant (CESG) if you contribute the annual maximum of $2,500. If you didn’t contribute the maximum amount in previous years to receive the full amount of grants available, you can carry forward the previous years’ unused grant amounts for use in future years. However, you can only catch-up on missed grants one year at time as only contributions up to $5,000 per year will attract grant money. This a good reason to start saving sooner.
The maximum amount that each child can receive in grants is $7,200. Additionally, grants are only available on contributions made by the end of the calendar year in which the child turns 17 years of age. However, there are certain requirements for children who are aged 16 or 17 which means that in order to be eligible for the CESG, you must start to save in RESPs for your child before the end of the calendar year in which they turn 15 years of age. This is another reason to start saving sooner.
If your family’s net income is less than $48,535 in 2020*, you may be entitled to an additional 20% grant on the first $500 of annual contributions, for a total of $100 per year. Where a $2,500 annual contribution has been made, this can result in total annual, grants of $600, to the maximum of the lifetime limit of $7,200.
And if your family’s net income is more than that but under $97,069 in 2020*, the additional grant is 10% on the first $500 of contributions each year for a total of $50. In which case, your child can receive $550 per year.
What about a child that doesn’t go to school?
School may not be for everyone. But college and university aren’t your kid’s only options. There are many other programs that an RESP can be used for, including foreign educational institutions abroad, trade schools or apprenticeships.
An RESP can be kept open for up to 35 years (or 40 years for a specified plan). There’s plenty of time for someone to go back to school as their career and interests change.
Transfer to another RESP
You may be able to transfer the money between RESPs with the same beneficiaries without having to pay taxes. Additionally, grants may be shared with a sibling if they have grant room available, otherwise they must be reimbursed to the government.
Withdrawing from an RESP
If the child doesn’t attend post-secondary school, you can withdraw your contributions, which could be as much as $50,000, with no tax consequences or penalties. But all earnings from your investments are taxed as regular income in the year you receive them and could be subject to an additional tax of 20%.
A formula is used to return an amount of CESG, QESI and SAGES to the government if you request a refund of contributions and no students are eligible for an EAP because they haven’t started post-secondary education. If contributions that attracted CESG are withdrawn before a student is eligible for an EAP, all students under the RESP aren’t eligible to receive the additional CESG for the remainder of the year and the next 2 calendar years. Repayments of CLB and BCTESG are not triggered by a refund of contributions.
Transfer to an RRSP
You can transfer $50,000 of earnings tax-free to your or your spouse’s RRSP as long as the child is over 21 years old, the RESP has been open for 10 years and there is sufficient contribution room in your or your spouse’s RRSP. This will avoid the 20% additional tax.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.