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Everything You Need to Know About RESPs in Canada

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Last updated on June 17, 2022 Comments: 29

The Registered Education Savings Plan (RESP) is a government initiative that incentivizes parents to invest in their child’s future post-secondary education. RESP contributions are tax free and generate an immediate 20% return on investments, thanks to the Canadian Education Savings Grant (CESG).

Ready to open an account? Make sure you’re familiar with the RESP’s ins and outs first.

RESP Basics

RESP Basics

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Although anyone can open an RESP for a child, they are typically opened by parents, guardians, or grandparents (known as the subscriber) who name their child, ward or grandchild as the beneficiary. All you really need to set up an RESP is a child’s birth certificate and their social insurance number

RESPs in Canada can be opened at most financial institutions, which include banks, credit unions, mutual fund companies, and investment dealers. Even some robo-advisors such as JustWealth now offer RESPs.

Although you can have multiple RESPs, there is a lifetime total maximum contribution limit of $50,000 no matter how many you open. Any contributions made over the limit would be taxed at 1% per month at the end of that month so make sure you stay under the limit.

Since RESPs are a type of account, you can invest in things such as stocks, bonds, exchange traded funds, mutual funds etc. inside of it. You can choose to invest on your own within the RESP, but many people prefer to work with a financial advisor.

Types of RESPs in Canada

 When setting up your Registered Education Savings Plan, there are three types of categories you can choose from.

Non-Family Plan

These types of plans can only have a single beneficiary and may appeal to people who prefer to manage their RESPs per individual child. Since you’re only dealing with a single beneficiary, you can invest based on that child’s timeline and set the asset allocation and risk tolerance accordingly.

Family Plan

Family plans allow you to have multiple beneficiaries, but they must all be connected by blood or adoption to the subscriber. Some subscribers prefer to go this route since the money contributed can be allocated as needed per child. That being said, if you’re dealing with multiple children of various ages, you need to plan accordingly to ensure that you’ll have the funds available when each child is ready for their post-secondary education.

Group Plans

Group RESPs or group scholarship trusts are another option available to parents which may be appealing since the money is pooled with other people and managed by a plan dealer. Your child’s payout would then be based on the total money in the pool and how many students of the same age are attending a post-secondary institution that year. This may seem like a guaranteed payout, but these types of plans have strict contribution and withdrawal rules which could come with big penalties and/or affect how much money your child will have access to when they need it for school.

How the Canadian Education Savings Grant Works

How the Canadian Education Savings Grant Works

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RESPs in Canada have the added benefit of the Canadian Education Savings Grant (CESG) which gives any contributions made to the beneficiary a 20% match up to $500 per year. That means you would need to contribute $2,500 a year to get the maximum $500 grant.

Setting aside $2,500 per year, per child is no easy task for any parent, but the government allows you to catch up on the grant up to one year. In other words, you could contribute $5,000 in one year and get the full CESG for that year and the previous year. However, you can’t contribute $25,000 one year and try to claim the previous 10 years of missed grants.

The CESG also gives children from middle and low-income families an additional match.

For families with a net income of $48,535or less, their children would get a 20% match on the first $500 in RESP contributions and 20% on contributions between $501-$2,500. That would give them a total yearly CESG of $600.

If your family’s income falls between $48,535and $97,069, then your children would get a 10% match on the first $500 contributed to their RESP. All other contributions between $501-$2,500 would earn the 20% match. Children in this situation would earn a yearly maximum CESG of $550.

Note that the minimum income threshold is based on the adjusted income and can change over time. Children of middle and low-income have the same $7,200 lifetime CESG limit, but they may also qualify for the Canada Learning Bond which would give them up to $2,000 towards their RESP without their subscriber having to make any contributions.

How Your RESP Is Calculated

Your RESP’s value is calculated based on three factors:

  • Your contributions
  • The match from the Canadian Education Savings Grant
  • Your investment returns

Let’s say you contributed $1,000 toward your child’s RESP every year for 17 years. You would have put in $17,000. The CESG would have given you $200 per year for a total of $3,400. Combined you would have $20,400, but we also need to factor in the average rate of return. If you averaged 4% every year, your child would end up with $30,774.50 in their RESP after 17 years.

Now, if you used the same numbers, but had an annual rate of return of 6%, your child would have $37,086.78. As you can see, a 2% improvement in the rate of return can make a big difference, but that’s not something you can predict. You’re better off trying to max out the yearly CESG if you can since that’s a guaranteed return.

How to Make an RESP Withdrawal

Withdrawing from your RESP in Canada is a pretty straightforward process. Once the beneficiary is enrolled full time or part time in a qualifying post-secondary institution, the subscriber would request funds to help pay for the beneficiary’s education.

The amount you’ve contributed is known as the Post-Secondary Education Payments (PSE). You do not get taxed on any PSE. When you make an RESP withdrawal, you’re making an Education Assistance Payment (EAP). EAPs are considered taxable income for the beneficiary, but since most students don’t have a high income, they would likely pay minimal tax (if any at all).

A limit of $5,000 for full-time students and $2,500 for part-time students can be withdrawn during the first 13 consecutive weeks of enrollment. Once that timeline has passed, you can request additional funds with no limit, unless the student takes a break from their studies and does not re-enrol at a qualifying post-secondary program for 12 months.

What Happens If the Beneficiary Decides Not to Continue Their Studies?

What Happens If the Beneficiary Decides Not to Continue Their Studies?

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The nice thing about RESPs in Canada is that there are a few ways to utilize your investment, even if your child decides to delay their post-secondary education or decides to not go at all.

Since RESPs can be open for 36 years, you can leave it alone for the time being. Alternatively, you could replace the beneficiary by naming someone else. With family plans, you can easily just shift that money to the next child. Group plans may allow you to transfer your plan to another beneficiary without any fees, but you need to read up on the terms and conditions of any plan so you know exactly what you can and cannot do.

Any contributions you made to an RESP and any investment income generated up to $50,000 can be transferred into your Registered Retirement Savings Plan (RRSP). To qualify, you must be a Canadian resident; the RESP must have been open for at least 10 years; all beneficiaries must be at least 21 years of age and not attending a post-secondary institution; and you need to have enough contribution room in your RRSP.

Closing the RESP is likely the last-resort option for most people. Any grants and bonds from the government need to be returned, but contributions you made are yours to keep tax-free. You can also withdraw some of your investment earnings if the RESP has been open for at least 10 years and each beneficiary is at least 21 years of age and not continuing their education. However, your earnings will be taxed at your regular income tax level, plus an additional 20% which is known as the Accumulated Income Payment.

The Earlier the Better

All this talk about Registered Education Savings Plans may have made your head spin, but getting things started is pretty easy. By setting up an RESP for your child early, you can take advantage of compound interest which means more money for your child’s education later.

Author Bio

Barry Choi
Barry Choi is a personal finance and travel expert at MoneyWeHave.com. He has been quoted by media in Canada and the United States, including The Financial Post, The Toronto Star, Business Insider, The Globe and Mail, and has appeared on HuffPost Live. You can follow him on Twitter: @barrychoi

Article comments

29 comments
Ben says:

Re : RESP Withdrawal from GIC
I know that I can cash in a RESP GIC prior to it’s maturity date. My question is will it pay at the same interest rate ? e.g I purchase an 18month GIC at .6% in Sep. 1, 2021. On Dec.1, 2021 I decide to cash it in. Will it pay the .6% for Sep, Oct, Nov 2021 ?
Thanks in advance

Daniel from GreedyRates says:

Hi Ben,
This will really boil down to the fine print in your contractual agreement. GICs are often laddered and pay out according to their schedule- there’s no guarantee that your 18 month rate will apply to the first three months. It’s also worth noting that your RESP may be subject to penalties or conditions if you make any premature withdrawals.

Lesley says:

Can the subscriber take the RESP money out at any time, especially if they know the beneficiary is not going to university or college? This means none of the contribution grant or it’s interest. (Just our contribution.)

Daniel at GreedyRates says:

Hi Lesley,
Even if the beneficiary will not be going to school, you can withdraw your original RESP contribution amounts tax-free at any time. Any grant incentives will be returned to the government and any investment income (up to $50,000) made within the RESP can be rolled into your RRSP provided you have the contribution room.

Vish Taha says:

We would like to transfer our existing RESP to another promoter. Our current promoter states that we will lose our income earned on our contributions, sales charge and transfer fee. Are their any laws in place to protect or save us from these hefty fees. Also, are they legally allowed to completey take off interest earned on my contributions that our hard earned money.

Aaron Broverman says:

Hi Vish,
You simply need to call or go to the institution where you want to transfer the RESP and they will initiate the transfer. You don’t even have to tell your current RESP holder. Your new institution will take care of it all for you and organize the paperwork. Before you sign the paperwork, give a copy of your most recent investment statement that shows what’s invested and where to the new institution, figure out whether your old institution would charge you a fee to transfer it and what those fees are (you can also ask the new institution if you get to keep the accumulated interest or matching payments by the government) Also, ask your old institution how the account is registered. This can also be found in the original documentation you have for the plan. Also, find out if the receiving institution will offer to cover the fee charged by the old sending institution. Then, ask the receiving institution how long the transfer usually takes and by what you should be concerned if you don’t see anything happening. Ask who you should call if you feel something went wrong or gets delayed. Finally, once everything is transferred, check the old statement against the new statement ands see if a fee was charged and if you’re reimbursed and make sure you have all the money you’re supposed to.

Tam says:

We have been contributing $2500 per year per child. We are currently at a balance of $103,000 on our family RRSP. The children are under age 12. I know that the max is $50,000 in contributions per child but I know that the 103,000 is not just my contribution, but also the government grant money too. How do I know when I’ve reached the 50,000 limit per child? Do you suggest investing in a TFSA after I’ve reached the limits on both kids?

Aaron Broverman says:

Hi Tam,
You should get a letter annually outlining your max contribution limit for the year in order to get the grants. Every time the government deposits a grant, your financial advisor or the bank that manages your RESP should send you either online or through terrestrial mail a confirmation of any contributions made by the government. If you’ve stopped receiving them, you likely have stopped receiving the grants, but you can always call the advisor or bank managing your RESP to ask them where you’re at as far as grants and contribution limits. Sure a TFSA would be a great option for the overflow because it’s pretty low risk and will preserve your balance so you have the most money when they’re ready to go to university. If you’d prefer to get more money for a bigger risk, you can invest directly in stocks and mutual funds, but be prepared for big swings in value.

Adam says:

We have a family plan with a bank for our four kids. One child is entering college this fall. I am wondering if I can pull out his 1/4 share of the PSE without tax and reinvest it for the other 3 kids, thus getting more grant money. Thoughts?

Aaron Broverman says:

Hi Adam,
The short answer is yes you can. Both grants and growth on the principal investment can be shifted among all the beneficiaries, so you can give more or less of the funds to one child and not the other. I would talk to your RESP advisor on how to make this happen.

Ian Kirk says:

I have 2 RESP open , both beneficiaries were my 2 daughters for both RESP’s. I opened two of them so to diversify the risk as I was dealing with two different portfolio managers at two different firms. My question is this, Both daughters have completed their 4 year programs, so no longer need the funds in either RESP, both RESP have been in existence for 25 years so I have 11 years left to close, One of the RESP’s has 15,000 dollars in it and the other has a balance of 185,000 as this portfolio manager had us buy Apple back in 2004 at 18 dollars a share, so Can I close the smaller RESP of 15,000 dollars first in the coming year and leave the larger one to grow? Or By law since I close one I’m I forced to close both at the same time? I’m retired so I’m drawing against my RRSP for income of 40,000 a year.

Aaron Broverman says:

Hi Ian,
All the information I’m able to gather seems to suggest that you can close each RESP individually and let the one you want to grow until you absolutely have to close it in the 35th year. After all, who knows? your daughters may go back to school at some point in their lives.

Allison says:

What documentation are RESP providers allowed to ask for? How long should it take to withdraw funds? How long after the courses or program can you submit your withdrawal request?
I’m having trouble making a withdrawal from our RESP. We submitted a claim for two of our children almost 3 months ago. Instead of examing the form and asking for whatever additional paperwork they want, they wait until we all them and request a single thing each time – my daughter’s timetable, then weeks later my son’s timetable which doesn’t exist because the courses were online asynchronus, etc. Now they’re saying that it is too long past the end of the program. My son took 3 online courses that went from May to August. My daughter is in a 4-year program and she was a full-time student from September to August. We submitted withdrawal requests in November. We finally called the bank ombudsman last week who provided no help. Called them again today and they say to wait another 10 days!

Aaron Broverman says:

Hi Allison,
The only documentation you really need to make a withdrawal is proof of enrollment at a post secondary institution by the beneficiary. However, some institutions require additional information, but you will have to talk to your bank about what they need specifically. They may provide you with a list of allowable expenses that the money can be used for, or they may ask for receipts for school purchases to prove the money is being spent on allowable educational expenses. You are allowed to withdraw funds for up to six months after the qualifying post secondary education is completed (not all schools qualify for RESP withdrawl so look this up and see if their schools qualify) All expenses must be expenses that further the beneficiary’s education in order for student assitance payments aka RESP proceeds to be put towards them.

Izabela says:

What happens in the year when the beneficiary moves out of Canada? If a contribution is made, the government grant is received, and then the beneficiary (while still a child) moves to another country, what happens to the government grant?

Aaron Broverman says:

Hi Izabella,
When the beneficiary moves out of Canada, they are no longer a resident of Canada, which means they will not receive future government grants and future contributions to the RESP cannot be made as long as they are living outside of Canada. Grants already received, stay in the account until it’s time to withdraw and they are still a non-resident at that time. If you start withdrawing money from the RESP while the beneficiary is still a non-resident, any government grants will be repaid back to the government. If the beneficiary ends up going to an eligible post-secondary institution while still a non-resident, your principal contributions are withdrawn and given to them tax-free, any growth above the principal is subject to a withholding tax. If the beneficiary returns to Canada for school and withdrawls are made, the grants don’t have to be repaid. I would recommend finding other ways to save for their education while they are a non-resident, evben though you can still manage the existing funds in the RESP from abroad.

RS says:

Can a Canadian citizen not living in Canada but contributing to RESP, withdraw the money to pay for university education outside Canada?

Aaron Broverman says:

Good question RS,
If you go to school outside of Canada, RESP money can still be used to pay for your education, but you must be a Canadian resident to be able to use and receive the government matching grants. If you are not a Canadian resident, those grants are returned to the government, but you can use the remaining money to still pay for your education outside Canada.

David says:

Thanks — this was just the overview I was looking for! The $50,000 contribution limit bit as currently written is confusing, though. It reads here as though the limit is on what I can contribute to any RESPs in my lifetime, but it’s actually a lifetime limit on how much a beneficiary can get from all contributors.

Aaron Broverman says:

Thanks David, sorry for the confusion, but your comment will clear it up for people.

Terry Forman says:

In July/2020 we registered/started a RESP for our niece’s new baby with an initial contribution of $2500 which the government topped up to $3000. If we want to make a yearly contribution for 2021, can it be done effective January 1/2021 or do we have to wait for the anniversary date (in July) to make the contribution.

Yasin says:

i have the same question , i registered a RESP account for my soon on November 2020 and contributed yearly limit of $2500 and received the government CESG grand $500 in December 2020. when i can make the next $2500 contribution in 2021? January 2021 or i have to wait for November 2021?

Aaron Broverman says:

Hi Yasin,
You can make the maximum contribution at any point in the calendar year and you will be entitled to the full grant for that year. You can even go back and contribute the full amount to make up for past years and you will receive the maximum grant for that year too. (factoring in contributions you’ve already made, of course)

Aaron Broverman says:

Hi Terry,
You can make your contributions any time during the calendar year and you can contribute for 31 years. The account can remain active for 35 years.

Nishma says:

The enhanced grants for lower income families have changed for 2020. Please update your numbers

Aaron Broverman says:

Thanks Nishma,
I’ll get someone to look into it.

Aaron Broverman says:

I recently handed in an update for this reflecting 2020 numbers. Thanks for the catch

Jay says:

Like a lot of parents , im looking for the best performing products. I know specific recommandations are “illegal” if im not mistaken. But where to look for the best options?
Thank you

Aaron Broverman says:

Hi Jay,
If you want stability with little market volatility, consistent average rate of return and low fees that don’t cut too much into your principle look at the major banks and The Canadian Scholarship Trust Foundation. If what you’re looking for is the highest rate of return possible — market volatility and fees be damned — then I would seek out an individual investment broker at an independent investment firm. These people usually have access to a wider variety of investment funds and working with them will give you greater control over what your money is investment in. You’re not one a billion in a nameless and faceless group investment plan. If you are a high net-worth individual you will have access to even more private wealth management firms than the average joe, which have access to even more specific and specialized investment funds with high rates or return but more market risk.