Registered Education Savings Plan

A Registered Education Savings Plan (RESP) is a tax-advantaged investment vehicle designed to encourage saving for post-secondary education in Canada. RESPs offer various benefits and features that make them an attractive option for parents and guardians looking to fund their children’s higher education.

What is an RESP?

An RESP is a government-registered account where Canadian parents, grandparents, and guardians can save money for their children’s future education. Contributions to an RESP are not tax-deductible, but the investments within the plan can grow tax-free until the funds are withdrawn.

When the recipient (usually the child) enrolls in a post-secondary educational institution, they can withdraw the funds to cover educational expenses. These withdrawals are typically subject to the student’s tax rate, which is often lower than that of the contributor.

Types of RESPs

There are three main types of RESPs:

  1. Family Plan: Allows one or more beneficiaries who are related to the contributor by blood or adoption. This plan is beneficial for families with multiple children.

  2. Individual Plan: Designed for a single beneficiary. This type of plan is ideal if you’re saving for one child only.

  3. Group Plan: Typically offered by financial institutions or scholarship plan dealers. Contributions from various subscribers are pooled together and invested collectively. The amount a beneficiary receives depends on how much is collected in the pool and the number of beneficiaries in the same age group enrolled in the plan.

Contributions to an RESP

Contributions to an RESP can be made by anyone, but there are certain limits and restrictions:

Government Grants and Incentives

One of the most significant advantages of an RESP is the availability of government grants that can augment the savings, including:

Canada Education Savings Grant (CESG)

The CESG is a grant from the federal government to encourage saving for post-secondary education. There are two types of CESG:

  1. Basic CESG: Provides 20% on the first $2,500 contributed each year, up to a maximum of $500 per year. The lifetime limit for the Basic CESG is $7,200 per beneficiary.

  2. Additional CESG: Available to low and middle-income families, this grant provides an extra 10% or 20% on the first $500 contributed each year.

Canada Learning Bond (CLB)

The CLB is offered to low-income families and does not require any contributions to qualify. The government provides an initial $500 when the RESP is first opened, and $100 each year for up to 15 years, with a maximum lifetime bond of $2,000.

Provincial Grants

Certain provinces also offer additional incentives. For instance, British Columbia provides the BC Training and Education Savings Grant, and Quebec offers the Quebec Education Savings Incentive.

Investment Options Within an RESP

RESPs can hold various types of investments, including:

The investment strategy can be tailored based on the age of the beneficiary and the time horizon for needing the funds. Typically, more aggressive investments are chosen when the child is younger, transitioning to safer, fixed-income investments as the time for post-secondary education approaches.

Withdrawing from an RESP

Withdrawals from an RESP are categorized into two main types:

Educational Assistance Payments (EAPs)

EAPs consist of government grants and the accumulated income on both contributions and grants. These payments are made to the beneficiary for qualifying educational expenses, such as tuition, books, and living expenses. EAPs are taxable in the hands of the beneficiary.

Refund of Contributions

This consists of the original contributions made to the RESP, which can be withdrawn tax-free by the contributor at any time. However, if the CESG or other grants are withdrawn without being used for educational expenses, they will have to be repaid to the government.

Flexibility and Transferability

RESPs offer some level of flexibility and transferability. If the beneficiary does not pursue post-secondary education, the contributions can be transferred to another eligible beneficiary. Additionally, up to $50,000 can be transferred to a Registered Retirement Savings Plan (RRSP) of the subscriber if certain conditions are met.

RESP Providers

RESPs can be opened through various financial institutions, such as banks, credit unions, and mutual fund companies. It is essential to compare the options and fees associated with different providers before setting up an RESP.

For more information on specific RESP providers, you can visit their official websites, such as:

In conclusion, an RESP is an excellent tool for Canadian families to save for future educational expenses. The combination of tax-deferred growth and government grants makes it a compelling option for long-term savings. Understanding the types, contributions, grants, investments, and withdrawal rules is crucial to maximizing the benefits an RESP can offer.