Registered Education Savings Plan (RESP): What It Is and How It Works
What is an RESP?
A Registered Education Savings Plan (RESP) is a Canadian government‑sponsored savings program that helps families save for a child’s post‑secondary education. Contributions grow tax‑deferred, and the government adds matching grant money to boost savings. Contributions themselves are not tax‑deductible.
How RESPs work
- Anyone can contribute to an RESP for a beneficiary (child) — parents, relatives, or friends.
- Contributions grow tax‑free inside the plan. Taxes are payable when money is withdrawn.
- Withdrawals are divided into two parts:
- Contributions — returned to the subscriber tax‑free.
- Educational Assistance Payments (EAPs) — consist of investment earnings and government grants; these are taxed to the student (beneficiary) when paid. Because many students have little or no other income, EAPs are often taxed at low or zero rates.
- The plan must be registered with a promoter (bank, credit union, or other financial institution). The subscriber must provide a Social Insurance Number (SIN) to register.
Government grants (CESG) and limits
- The federal Canada Education Savings Grant (CESG) matches contributions up to a certain percentage, applied to the first $2,500 contributed per year. The CESG lifetime maximum is $7,200 per beneficiary.
- Some provinces (for example, British Columbia and Quebec) offer additional grants or tax incentives.
- Lifetime contribution limit: $50,000 per beneficiary across all RESPs.
- If a beneficiary does not enroll in an approved post‑secondary program within a specified period (commonly up to 36 years after opening the plan), grant amounts may be repayable to the government.
Taxes and penalties for non‑educational use
- If RESP earnings are withdrawn and not used for eligible post‑secondary education expenses, those investment earnings are subject to income tax plus an additional penalty (commonly an extra tax on accumulated income payments).
- Government grant money is typically returned if it’s not used for qualifying education purposes.
Pros
- Government matching grants boost savings.
- Tax‑deferred growth allows earnings to compound without annual tax drag.
- Withdrawals for education are often taxed to the student, who may pay little or no tax.
- Anyone can contribute, and multiple RESP accounts can be opened for the same beneficiary.
Cons
- Contributions are not tax‑deductible.
- There are lifetime contribution and grant limits.
- Grants may be clawed back if funds aren’t used for qualifying post‑secondary education within regulatory timeframes.
- Non‑educational withdrawals of earnings face income tax plus additional penalties.
Common questions
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What is the maximum CESG?
The CESG lifetime maximum is $7,200 per beneficiary. Provincial programs may provide extra benefits in some regions. -
Do I need to be a Canadian citizen to open an RESP?
A Social Insurance Number (SIN) is required to register an RESP. Subscribers are generally Canadians or persons with the right to work in Canada. Non‑resident U.S. citizens living outside Canada typically cannot open an RESP. -
Can a student have more than one RESP?
Yes. Multiple RESPs may be opened for a single beneficiary, but total contributions across all plans cannot exceed the $50,000 lifetime limit.
Bottom line
An RESP is a tax‑efficient way to save for post‑secondary education in Canada, especially when combined with government grants like the CESG. Understand contribution limits, grant rules, and tax/penalty implications for non‑educational withdrawals before opening and funding a plan. Financial institutions across Canada can help you choose and set up the right RESP for your needs.