What Is a Registered Education Savings Plan (RESP)?

What Is a Registered Education Savings Plan (RESP)?

If you're looking to save for a child's education in Canada, you should know about the Registered Education Savings Plan (RESP), which is sponsored by the Canadian government to encourage investments in post-secondary education. As a subscriber, you make contributions that generate tax-free earnings, and the government adds grant money for children under 18.

You won't get a tax deduction for your contributions to an RESP. Taxes only apply when funds are withdrawn for the child's education—your original contributions come back tax-free, but earnings are taxed. The government's contributions are taxed to the student, and since many students have low or no income, they often withdraw these funds without paying taxes.

How Registered Education Savings Plans Work

You can start an RESP for a child right from birth if you're a parent or guardian in Canada, and the government will contribute too. Head to a bank, credit union, or financial institution to open one—anyone can contribute, from parents to relatives or friends.

The government matches contributions up to a percentage and deposits it as the Canada Education Savings Grant (CESG), with amounts based on family income. This matching applies only to the first $2,500 contributed annually, capped at a lifetime maximum of $7,200.

When the child enters college, they receive educational assistance payments (EAPs), which count as their income. If no payments are made—say, because the beneficiary skips post-secondary education—you get your contributions back tax-free as the contributor.

There's no limit on the number of RESPs per child, but the total contributions across all can't exceed $50,000 per beneficiary.

Important Note

Remember, the government's grant money is taxable, but many students withdraw it tax-free due to their low income levels.

Pros and Cons of Registered Education Savings Plans

These plans are straightforward to set up and offer solid incentives for saving. You avoid initial taxes on the money, plus you get government bonuses, making it a practical way to fund education.

On the downside, if the child doesn't attend an approved post-secondary program within 36 years, the government may reclaim its grants. Also, withdrawing earnings for non-education purposes means paying income tax plus a 20% penalty.

What Is the Maximum Grant for a Canada Education Savings Grant (CESG)?

The maximum CESG grant is $7,200, and beneficiaries in British Columbia or Quebec might qualify for extra grants and tax deductions.

Do I Have to Be a Canadian Citizen to Open a RESP?

No citizenship is required to open an RESP as a subscriber, but you need a Social Insurance Number (SIN) to register it. If you have the right to work in Canada, you probably have a SIN—Americans not living or working there can't open one.

Can a Student Have More Than One RESP?

Yes, multiple RESPs can be opened for the same beneficiary by different people, but the combined contributions can't go over $50,000.

The Bottom Line

With rising post-secondary costs, an RESP combined with a CESG can help cover expenses. You can start one at any Canadian bank or financial institution, and with consistent saving, it makes education more achievable for your student.