Exploring investment and savings options in Canada
Registered Education Savings Plans (RESP)
Navigating financial planning for education can be complex, especially when planning for a child’s future education costs. Registered Education Savings Plans (RESPs) are a crucial tool in Canada for parents and guardians aiming to save for post-secondary education.
Am I eligible to open an RESP for my child?
| Citizen | Permanent Resident | Non-resident | Student Visa | |
| RESP (Registered Education Savings Plan) | Yes. Please note the beneficiary must be a Canadian resident to receive government grants. | Yes. Please note the beneficiary must be a Canadian resident to receive government grants. | Yes* – there is no specific residency requirement for the subscriber to open an RESP, but they must have a valid Social Insurance Number (SIN). The beneficiary must be a Canadian resident to receive government grants. | Yes* – there is no specific residency requirement for the subscriber to open an RESP, but they must have a valid Social Insurance Number (SIN). The beneficiary must be a Canadian resident to receive government grants. |
Subscriber: The person who opens and contributes to the RESP.
Beneficiary: The child who will use the RESP funds for post-secondary education.
A Registered Education Savings Plan (RESP) is a tax-advantaged account designed to help families save for a child’s post-secondary education. The government of Canada offers several incentives to encourage saving through RESPs, making them a popular choice for education planning.
Key Features of RESPs:
Government Grants:
- Canada Education Savings Grant (CESG): The government provides a 20% match on annual contributions, up to a maximum of $500 per year and a lifetime limit of $7,200 per child.
- Canada Learning Bond (CLB): For lower-income families, the government contributes up to $2,000 per child, even if no personal contributions are made to the RESP.
Tax advantages:
- Tax-Deferred Growth: Investments within an RESP grow tax-free until the funds are withdrawn.
- Taxation on Withdrawal: When the funds are withdrawn for educational purposes, they are taxed in the hands of the student, who typically has a lower income and may benefit from tax credits, resulting in little to no tax payable.
Common Questions:
- How much can I contribute to an RESP? There is no annual contribution limit, but there is a lifetime contribution limit of $50,000 per beneficiary
- What are my investment options? RESPs can be invested in various financial products, including stocks, bonds, mutual funds, and GICs.
- What happens if my child does not pursue post-secondary education? If the child does not pursue post-secondary education, the RESP can often be transferred to another beneficiary (such as a sibling), transferred to the subscriber’s RRSP or spousal RRSP, or the account can be closed and a non-educational withdrawal made.
- Can I use my RESP if my child pursues post-secondary school outside of Canada?: Yes, you can use an RESP if your child pursues post-secondary education outside of Canada. However, specific requirements must be met, such as the foreign institution being recognized by Employment and Social Development Canada (ESDC) as a qualifying educational institution.
Common Pitfalls to Avoid:
- Non-Educational Withdrawals: Withdrawing the earnings or grants for non-educational purposes will result in the repayment of the CESG and taxation of the growth at the subscriber’s marginal rate plus an additional 20% penalty tax.
- Not Maximizing Government Grants: Missing out on the full Canada Education Savings Grant (CESG) by not contributing enough throughout your child’s eligible years.
Registered Education Savings Plans (RESPs) offer a powerful, tax-efficient way to save for a child’s future education costs. Understanding the benefits, rules, and strategies for maximizing RESPs can help ensure you make the most of this valuable savings tool.
We hope you’ve enjoyed our series of articles describing the key registered investment account options available in Canada. If you missed or want to revisit any of the articles, click the links to read about RRSPs, TFSAs or FHSAs.
The articles were written to provide you with a high-level introduction to these investment vehicles. Hopefully, we’ve demonstrated our ability to take complex topics and make them approachable, implementable and easy-to-understand.
We’d love to work with you on a one-on-one basis. As a reminder, our financial planning services are offered at no cost or obligation so please reach out and let’s set up a call.
