A Registered Education Savings Plan (RESP) is a registered account designed to help you save for your child’s post-secondary education. The primary advantage is access to the Canada Education Savings Grant (CESG), a government matching program that adds money to the account based on your contributions.
Once the child (also referred to as the beneficiary) enrolls in a qualifying education program, withdrawals can be made. Any taxable income is taxed in the hands of the beneficiary, which is often taxed at a lower rate than the account holder's, since the beneficiary typically has less income.
Individual RESP vs. Family RESP
There are two types of RESP: the Individual RESP and the Family RESP.
An Individual RESP can be opened by anyone for a single child. This can be helpful if the child doesn't have a blood relative who is able to contribute to an RESP.
A Family RESP can be opened by a parent, grandparent, or sibling of the children, and can have multiple beneficiaries in the same account, provided they are siblings. This can be helpful if one beneficiary chooses not to attend post-secondary school, as some or all of the grants can be shared with the other beneficiary.
RESP grants: CESG and provincial programs
The primary grant is the CESG, which matches 20% of contributions up to a maximum grant of $500 per year. To receive the full $500, you'd need to contribute $2,500 that year. This grant is per child, so a Family RESP with two beneficiaries could receive up to $1,000 per year in total. The lifetime maximum CESG per beneficiary is $7,200. Additional grants may be available for lower-income families.
Depending on the province, there may be a provincial grant on top of the CESG.
Quebec Education Savings Incentive: Quebec provides a 10% matching grant up to $250 per year. An additional $50 per year may be available for lower-income families.
British Columbia Training & Education Savings Grant: BC provides $1,200 per beneficiary simply for having an RESP open. No contribution is required for this grant.
Your RESP provider will typically claim any federal grants automatically, unless otherwise specified. Some RESP providers do not claim provincial grants – check with your brokerage to confirm.
RESP contribution room
The lifetime RESP contribution room is $50,000 per child. You can contribute the full amount in the first year, but if you do, the RESP will only receive the $500 grant for that year and you'll forfeit any future grant eligibility.
Contributions to an RESP are not tax-deferred, which means they won't be taxed again when withdrawn, since they've already been subject to income tax.
The last year that contributions can be made is the calendar year in which the beneficiary turns 17.
Making up for missed grants
If an RESP is opened later in the child’s life, missed grants aren't necessarily lost. The RESP allows for missed grants to be reclaimed one year at a time.
For example, if an RESP isn't opened until the year a child turns 8, there are effectively eight missed grant years. In the year the account is opened, you can contribute $2,500 to claim that year’s grant, plus an additional $2,500 to reclaim one of the eight missed years. To reclaim an additional grant, you'd need to wait until the following year.
This also applies to years where only a portion of the $500 grant was received. The remaining amount can be claimed in following years, one year at a time.
Withdrawing from an RESP
There are two possible outcomes with an RESP: the child either enrolls in post-secondary education or they don't. There are three categories of funds within the RESP: initial contributions, grants received, and growth earned. How each is treated depends on which path the beneficiary takes.
Attending post-secondary: The growth in the account (income and capital gains) plus any grants received can be withdrawn as an Education Assistance Payment (EAP). EAP withdrawals are taxable, but are taxed in the hands of the beneficiary, who is often in a lower tax bracket. The original contributions can be withdrawn separately and are not subject to tax, since they were already taxed as income. Both types of withdrawal require documentation showing proof of post-secondary enrollment.
Not attending post-secondary: There's no rush to close the account – an RESP can stay open for 35 years from the date it was opened. If the child isn't ready for post-secondary now, they may change their mind later. If you decide to withdraw your initial contributions, you can do so tax-free. Any grants received will be returned to the government. Any growth earned in the account will be subject to withholding tax plus an additional 20% penalty tax. To avoid that penalty, the growth (up to $50,000) can be transferred into your own RRSP provided you have sufficient contribution room, the RESP has been open for at least nine years, and the beneficiary is at least 21 years old.
With a Family RESP, all of that growth can be directed to the child who does enroll, and grants can be shared among siblings up to the $7,200 lifetime maximum per child.Summary
An RESP is worth considering for parents saving for their children’s post-secondary education. The government matches 20% of your contributions through the CESG, up to a maximum grant of $500 per year, with a lifetime maximum of $7,200 per beneficiary. Additional grants may be available depending on income level and the province. Missed grants can be recouped one year at a time, and the account can stay open for up to 35 years.
