Registered Education Savings Plans (RESPs)

Saving for your child’s future is a daunting task. However, with the help of a Registered Education Savings Plan (RESP), you can start investing early, making it easier to tackle college and university expenses.

What is an RESP?

An RESP is an investment option sponsored by the Canadian government that helps individuals save for their child’s, grandchild’s, niece’s, nephew’s and similar beneficiary’s post-secondary education.

RESP Subscribers and Beneficiaries

Plan subscribers—those that open an RESP and make contributions into it—designate a beneficiary who can then use the funds to cover expenses related to apprenticeships, trade schools, colleges and universities.

Subscribers can enroll in RESPs simply by opening an account with a bank, credit union or other financial institution.

RESP Matching

The first $2,500 you contribute each year gets a 20 per cent matching contribution from the federal government using what’s called a Canada Education Savings Grant (CESG). Under CESGs, beneficiaries are entitled to a total of $7,200 of government contributions.

RESP Benefits

• RESPs are flexible, and anyone can open an account for a beneficiary. There are two basic types of RESPs—family and individual plans. The major difference between the two is that, with family plans, subscribers can name more than one beneficiary and funds do not need to be shared equally.
• Subscribers can contribute any amount to an RESP. However, there is typically a lifetime contribution limit of $50,000 per beneficiary. There are no limits on the number of plans subscribers can establish or RESPs a beneficiary may have.
• RESPs allow subscribers to get an early start on saving for their beneficiary’s education expenses. In fact, RESPs can be opened as soon as the beneficiary has a social insurance number.
• Subscribers don’t pay taxes on contributions until the money is taken out. Account holders can make lump-sum contributions at any time or set up automatic payments.
• Qualifying investments include savings deposits, guaranteed investment certificates and mutual funds.

Don’t wait to start saving for a loved one’s future. Contact us today to learn more about RESPs and if they are the right fit for the children in your life.

RESP FAQs

Who can open an RESP?

While parents are the most obvious candidates as contributors, anyone can open up an RESP plan. The person opening the RESP plan is referred to as the Subscriber. Where there is a single Subscriber, it is strongly recommended they designate a Successor Subscriber within a will to ensure the RESP continues after death.

How much can be contributed to an RESP?

The lifetime contribution limit for each beneficiary of an RESP plan is $50,000. This limit applies to the all contributions made for that individual across all RESP plans for which they are a beneficiary. Accordingly, care must be taken to co-ordinate contributions where there is more than one plan so that limits are not exceeded.

For example, if grandparents want to contribute to an RESP, they should communicate with the parents and other contributors to ensure the contribution limit is not exceeded.

What will the government contribute to an RESP?

A Canada Education Savings Grant (CESG) is payable on between $2,500 and $5,000 of contributions made in a year per RESP beneficiary, depending on whether contributions have previously been maximized. The grant amounts to 20% of the contribution made to a lifetime limit of $7,200. Special rules exist for beneficiaries ages 16 and 17.

What is the lifetime of an RESP?

An RESP plan can exist for 35 years after it is opened.

What are the tax benefits of RESPs?

While contributions to an RESP are not tax deductible, the CESG money and investment growth paid to RESP beneficiaries upon satisfactory proof of enrollment is taxed to them, at their presumably lower rate.

When the money is withdrawn, only the accumulated interest and contributions by the government will be taxed. Students typically have a lower tax rate than their parents or other subscribers, therefore the total tax paid would be lower than if another financial planning tool was used.

What if I have more than one child?

A “Family Plan” can be opened where there are two or more siblings. These plans provide planning flexibility when the time comes to pay money out of the plan: although contributions are subject to the limits outlined above, money paid out of the RESP can be in any proportion, subject only to a limit of $7,200 in CESG money per beneficiary.

When withdrawing the funds from a family plan, it doesn't need to be used equally per child.

What if the beneficiary of an RESP never attends qualifying post-secondary education?

In that situation, CESG money is returned to the government. The investment growth in the plan would be taxable to the Subscriber provided that all plan beneficiaries are at least 21 years of age and the plan has existed for at least 10 years.

Furthermore, there is a 20% penalty tax applied to such withdrawals. If the Subscriber has available RSP contribution room equal to or greater than the amount of the income payment from the RESP, special rules allow for the transfer of the RESP growth into the RSP.

If you are interested in discussing Registered Education Savings Plans further, contact your Scrivens advisor, email us at info@scrivens.ca, or call 613-236-9101.