Understanding RESPs: The Basics

Last updated: August 2024

A Registered Education Savings Plan (RESP) is a registered savings plan that helps you save for a child's post-secondary education. And for good reason: Education can be expensive!

In a nutshell, RESPs are set up for a beneficiary by a subscriber (often a parent or grandparent) who contributes money to the plan. Within an RESP, investment income and realized capital gains earned on the subscriber’s contributions generally grow tax-free until the funds are withdrawn by the plan's beneficiary to pay for educational expenses. When funds are withdrawn for educational purposes, the student will be taxed for any growth and grant money at their (usually lower) tax rate. A key advantage of an RESP is the potential to receive free federal government grant money that can really help to bolster savings over time. Read on to find out more.

Who Is Eligible to be a Subscriber?

Anyone who is contributing money to a plan on behalf of a single beneficiary or a family of beneficiaries for educational purposes can be a subscriber. Except for family plans, there are generally no restrictions on who can be the original subscriber, as long as the individual has a social insurance number (SIN). Joint subscribers are allowed as long as they are spouses or common-law partners. Beneficiaries must be Canadian residents and have SINs.

Contributing to an RESP

There is no limit on how many RESPs one beneficiary can have in their name, but there is a lifetime contribution limit of $50,000 per beneficiary. This limit includes all contributions made to all RESPs combined but doesn't include grant and investment income.

You can contribute into an RESP until 31 years after it was first opened. An RESP has a maximum life of 35 years. At the end, the plan must be closed.

Over-Contributing to an RESP

When the total contributions made to a beneficiary in one or more RESP(s) exceed the lifetime limit of $50,000, you must pay a penalty of 1 per cent per month on your share of the over-contribution until it is withdrawn. For more information, visit the Government of Canada’s CRA website.

Grants

You can also take advantage of government savings incentives. The CESG, the most common grant, adds a maximum of 20% per beneficiary per year to a maximum of $500. In other words, if you contribute $2,500 one year, the federal government will grant you $500. If there are previous CESG grants that you did not use, you can use one year's unused room per year to contribute an additional $2,500 and receive the associated $500 grant.

There are also other grants you may qualify for based on provincial residency. For example, if you are a parent subscriber and both you and your child are resident of British Columbia, you may be eligible for the BC Training and Education Savings Grant (BCTESG). BCTESG is a $1,200 one-time grant per eligible beneficiary with no financial contribution necessary. The subscriber may apply for a grant from the day the beneficiary turns six to the day before their ninth birthday.

Withdrawing from an RESP

RESP contributions and EAPs (Education Assistance Payments) are taxed differently:

• Contributions can be withdrawn tax free because the subscriber already paid taxes on the contribution amount.
• EAP amounts and the accumulated income (interest, dividends, and capital gains) are taxable to the beneficiary when withdrawn.
• There is a $8,000 limit applied to EAP withdrawals in the first 13 weeks of schooling.

If a child chooses not to continue their education after high school, you can wait and see if they change their mind. RESP accounts can stay open for up to 35 years. After this, the plan must be closed.

Opening an RESP

Ready to open an RESP? Great! You'll need the child's SIN and your own SIN to get started.

Find out more about RESPs in 9 Common RESP-Related Questions & Answers (with video), RESP Withdrawals: 6 Things to Consider and RESP FAQs.

The information provided in this article is for general purposes only and does not constitute personal financial or tax advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.

Next up: Types of RESPs & Investment Choices