Understanding RESPs: The Basics

Last updated: September 2023

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and realized capital gains earned on your contributions (as the subscriber) generally grow tax-free until the funds are withdrawn by the plan's beneficiary to pay for educational expenses. When the student withdraws the funds, they are taxable to them, at their (typically) lower tax rate. A key advantage to 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?

A subscriber can be anyone who is contributing money to a plan on behalf of a single beneficiary or a family of beneficiaries for educational purposes. 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 in all RESPs combined, but doesn't include grant and investment income.

You can contribute to an RESP for a maximum of 32 years (the year the plan opened plus 31 years). 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limit of $50,000, you must pay a penalty of 1 per cent per month on your share of the over-contribution until it is withdrawn.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 My Account for Individuals section of the CRA website.

Withdrawing from an RESP

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

• Because the subscriber already paid taxes on contributions, this money can be withdrawn without any taxes owing.
• No taxes are paid on EAP money until it is withdrawn. Once withdrawn, EAPs are taxable to the beneficiary
• 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.

RESP Transfers

If you know the beneficiary will not use the RESP money in the future, you can transfer it to another RESP. Most of these transfers have no tax implications. Speak to your tax advisor before making a transfer.

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