Registered Education Savings Plan (RESP)

A registered education savings plan (RESP) is a financial vehicle that is specially designed to build up savings for a child's postsecondary education. The amounts accumulated in an RESP are intended to cover the tuition fees and all education-related expenditures, such as housing, school supplies, food, transportation expenses, etc.

As is the case with the registered retirement savings plan (RRSP), the federal government permits the investment income from an RESP to grow in a tax shelter as long as it is not withdrawn from the plan. Clearly, the RESP is to education what the RRSP is to retirement.

In addition, to encourage parents to invest in the postsecondary education of their children, the federal government will provide a grant corresponding to 20% of the annual contributions paid into the plan, up to a maximum of $500 per year, per beneficiary. The lifetime maximum grant paid per beneficiary cannot exceed $7,200.

Who May Subscribe to an RESP?

Any person who is concerned about the future of a child - a parent, grandparent, godparent, uncle, aunt, or even a friend - may subscribe to an individual RESP.

More than one person may subscribe to an RESP for the same child. For example, a parent and a grandparent may both subscribe to separate RESPs on behalf of the same child. They must simply comply with the allowable contribution limits for the same beneficiary.

Who May Be Designated the Beneficiary of an RESP?

You may designate a child, grandchild, nephew, niece, or anyone else as the beneficiary of an individual plan. There is no restriction on the relationship between the child and you.

Once the plan is in effect, you may also change the beneficiary to someone younger or older. The contributions simply continue until the plan terminates, in accordance with the age of the new beneficiary. How Much Can You Save?

To provide you with the tax benefit associated with the RESP, the federal government has established a lifetime maximum cumulative limit of $50,000 per beneficiary, without annual contribution limit. These allowable contribution limits apply to the beneficiary and not to the subscriber. This means that a parent and a grandparent, for example, may both subscribe independently to an RESP for the same beneficiary; however, the contribution limits must be respected to avoid a tax penalty.

You may contribute to the plan for 21 years starting on the plan creation date, and the RESP must be fully liquidated no later than 25 years after it was established.

Increasing Your Savings Through the Canada Education Savings Grant (CESG)

The Canada Education Savings Grant Program, established by the federal government, aims to encourage parents to invest in the postsecondary education of their children.

This grant corresponds to 20% of the annual contributions paid into an RESP, up to a maximum of $500 per year, per beneficiary. The lifetime maximum grant paid per beneficiary cannot exceed $7,200.

The grant amounts received accumulate tax sheltered in the RESP. During the beneficiary's postsecondary education, these amounts will be added to income paid in the form of educational assistance payments. The CESG does not affect the allowable contribution limit per beneficiary.

If no contribution is made for a given year or if the contributions paid are lower than the contributions required to obtain the maximum CESG ($500), you may carry forward unused CESG room to subsequent years, as long as the beneficiary is eligible. However, the total annual grant amount paid cannot exceed $1,000.

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