Registered education savings plans

A Registered Education Savings Plan (RESP) is a tax-deferred savings account designed for Canadians to save for qualified post-secondary education expenses for eligible students.

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What is an RESP (Registered Education Savings Plan)?

While most Canadians have likely heard of Registered Education Savings Plans (RESPs), many are still not clear how they work and could be missing out on key opportunities.

An RESP is a tax-deferred savings account to help parents, grandparents and others save for a child’s post-secondary education. Subscribers, typically parents but can be anyone, open the RESP and make contributions for the plan’s beneficiaries.

While your child is under 18, your contributions are generally eligible for a matching federal government contribution, called the Canada Education Savings Grant (CESG). This grant matches 20% (and in some cases more), of your contribution, up to an annual maximum of $500 and lifetime maximum of $7,200 per child. Additionally, the Canada Learning Bond (CLB) may be available for children in lower-income families.

There is no annual limit on the RESP contributions you can make, but your annual contribution required to maximize the CESG is $2,500. RESPs do have a lifetime contribution limit of $50,000 per child. CESG and CLB payments aren’t included in this maximum.

Contribution room accrues from your child's birth and unused amounts can be carried forward to future years. You can make contributions for up to 31 years from the opening of the RESP. Unlike RRSPs, your RESP contributions aren’t tax-deductible but they do grow tax-deferred. The CESGs and CLBs within the plan are tax-deferred as well. Most typical investments are available for RESPs, including mutual funds, GICs, ETFs, stocks and bonds.

When the funds are eventually withdrawn by the beneficiaries for post-secondary education, the withdrawal is virtually tax-free. That’s because your contributions weren’t   tax-deductible, while the investment returns and government amounts, will be included in the children's income for the year. And as students, they will be in a lower tax bracket or pay no tax at all.

How do RESPs work?

Eligibility requirements

Typically, it’s parents or grandparents setting up an RESP to save for the future post-secondary education of their children or grandchildren. They are known as the plan’s subscribers. However, anyone can open an RRSP account, and anyone can be a beneficiary. It may be a brother, sister or spouse.

The subscriber owns the funds and makes the contributions. They are required to be a Canadian resident. A maximum of two subscribers per RESP are allowed, providing they are spouses. Grandparents can also be joint subscribers if they are spouses. The beneficiaries, usually the children or grandchildren who will draw on the funds to finance their education, must also be Canadian residents and have a valid Social Insurance Number (SIN).


If the RESP is a family plan, there can be multiple beneficiaries, but they are required to be related to the subscriber. This would include children, stepchildren, grandchildren or siblings. Nieces and nephews are not eligible. Beneficiaries must also be under age 21 when the plan is opened. If the RESP is an individual plan the subscriber and beneficiary can be anyone of any age, but there can only be one beneficiary.

CESGs and CLBs have additional eligibility requirements. CESGs are only available up until the end of the calendar year when the child turns 17. The CLB is specifically offered to low-income families for children born after January 1, 2004.

Eligible educational institutions

The list of post-secondary schools you can save for through an RESP is extensive. It includes universities, community colleges, vocational colleges and technical colleges across Canada, plus many universities internationally. 

Other educational institutions that provide approved post-secondary courses and degrees may also qualify. Programs must be a minimum of 13 weeks long and 10 hours per week of classes.

Even if your child isn’t interested in college or university, there are many other RESP qualifying schools and programs. These include trade schools, hair stylist programs and CEGEPs in Quebec. The Government of Canada website has a complete list of designated educational institutions.

Types of RESPs

Edward Jones offers two types of RESPs to help you save for post-secondary education. These are a family plan and an individual plan.

Family plan
A family plan helps you save for multiple children. It provides flexibility by allowing contributions, investment returns and government grants, (up to $7,200 in grants per child) that can be used by any beneficiary in the plan.

To be eligible, beneficiaries must be under age 21 and related to you, the plan subscriber, by blood or adoption (or related to a deceased original subscriber). This would include your children, stepchildren, grandchildren or siblings. Nieces and nephews are not eligible. If you’re saving for children and grandchildren, two separate plans need to be opened.

You self-direct a family plan by stipulating in the original application which portion goes to which child. Contributions and grants are then tracked on a per-beneficiary basis. If a specific contribution is to be allocated differently, you’ll need to report how it is to be allocated.

If one beneficiary decides not to attend post-secondary education or doesn’t use their entire savings portion, you can direct the funds to other beneficiaries. Keep in mind the CESG is limited to $7,200 per child, and the CLB can only be used by the original child it was intended for. As a result, you might have to repay some, or all, of these grants to the government. An Edward Jones financial advisor is available to walk you through the finer details of RESPs.

Individual plan
An individual plan is for a single beneficiary. It’s a simpler, easy to manage option to save for future education when you don’t have to worry about dividing funds for multiple children.

Anyone can be designated as the beneficiary of an individual plan, including the subscriber or their spouse. Unlike family plans, the subscriber and the beneficiary do not have to be related. A beneficiary age limit doesn’t apply either.

There’s also no extra administrative responsibility on the subscriber to keep track of which contribution is going to which beneficiary. What’s more, the entire CESG can be transferred to another beneficiary, if he or she is under 21, without affecting their contribution or grant room.

One of the best aspects of these plans is you have the flexibility to make and change your own schedule for contributions (as long as you make an annual contribution of $2,500 if you want to maximize government grants and keep within the $50,000 lifetime contribution limit). Individual plans are typically used for the only child family or if you want to save for your own education.

RESP contributions

There are some finer details about contributing to an RESP that you need to know:

Annual deadlines
The deadline to register RESP contributions for the year is the end of the calendar year, December 31.

Contribution limits
You can contribute to an RESP for up to 31 years from the opening date and it can remain open for a maximum of 35 years. There is no annual contribution limit, but the total lifetime amount you can contribute is $50,000 per child. CESG and CLB payments aren’t included in this lifetime maximum.

If you want to take full advantage of the CESG and CLB government grants, and keep within the $50,000 lifetime contribution limit, you’ll need to make annual contributions of $2,500. To build up funds more quickly, consider setting up an automatic payment plan from your bank account. Deposits can be as low as $25 per month.

Excess contributions
If you over-contribute to an RESP there is a tax penalty. This is 1% per month until the excess amount is withdrawn. If there’s more than one subscriber, each subscriber is responsible for the tax on the portion of the excess amount.

This penalty must be paid to the CRA within 90 days after the end of the year in which the over-contribution was made. CESG and CLB payments aren’t included in excess contributions.

Who can contribute?
It’s the subscribers of the plan that own the funds and make the contributions. Typically, this is parents or grandparents opening an RESP to save for the future post-secondary education of their children or grandchildren.

For family RESPs with more than one beneficiary, subscribers must be related by blood or adoption. Individual RESPs do not have this restriction. Anyone can set up an individual plan for a single beneficiary and make contributions. It may be a friend, spouse, sibling or nephew.

Across both plans, subscribers are required to be a Canadian resident. You can continue to make contributions for 31 years from the RESP opening date.

Can you have more than one RESP?
Yes, it is possible to have more than one RESP account for the same child (beneficiary). However, the lifetime $50,000 RESP contribution and lifetime $7,200 CESG limits are not increased by opening multiple accounts. That is, the limits are per beneficiary, not per account.

Withdrawal rules

The money in an RESP comes primarily from three different sources - your original contributions, matching government contributions, and investment growth. The distinction between these sources is important because each is treated differently upon withdrawal.

Providing your children attend a qualifying post-secondary institution, when they start making withdrawals, the contributions you made are called Post-secondary Education (PSE) withdrawals and come out tax-free as these weren’t tax-deductible. The investment earnings and government amounts, called the Education Assistance Payment (EAP), when withdrawn by your children, will be included in their income for the year, but as students, they will be in a lower tax bracket or pay no tax at all.

If a child decides not to pursue post-secondary education, you can withdraw your contributions with no tax consequences. The investment growth, called the Accumulated Income Payment (AIP) in this withdrawal scenario, is taxable at your marginal tax rate plus an additional 20%. However, if you have RRSP contribution room, you can potentially defer some of the tax by transferring up to $50,000 of the AIP from the RESP to your RRSP.

CESGs in family plans will have to be repaid if you’re unable to transfer the funds to another eligible beneficiary with available room. However, the entire CESG in an individual plan can be transferred to another beneficiary if they are under 21 years of age provided the $7,200 CESG maximum per child is not exceeded. The CLB in both plans has to be repaid as it can only be used by the original child it was intended for.

An Edward Jones advisor is available to walk you through the finer details of RESPs.

Transfers

If you have a child who isn’t interested in post-secondary education, there are a few options to consider for your RESP.    

An RESP can remain open for 35 years
Your child may change their mind and decide to pursue a program in the future, so it may be worth keeping the RESP open.

It may be possible to transfer RESP funds to another child
If you have more than one child, it may be possible to transfer RESP funds to another child who is interested in pursuing post-secondary education. You will have to repay the government grants, in some instances, but you can move your contributions and investment growth to another child if they have available contribution room.

You can transfer funds between beneficiaries in a family plan, but the CESG will need to be returned if another beneficiary doesn’t have available grant room. You can also transfer funds from a beneficiary in a family plan to a beneficiary in an individual plan, vice versa, or between two individual plans.

To transfer to a family plan, the new beneficiary must meet the requirements of that plan. They need to be related to the subscriber by blood or adoption and be under the age of 21. With individual plans, transferred funds can include CESGs without restrictions if the new beneficiary is under 21. The CLB has to be repaid in both plans as it can only be used by the original child it was intended for. 

Transfer RESP funds to your RRSP
As mentioned, government grants will have to be repaid in many instances, but your contributions can be withdrawn tax-free as RESP contributions are not tax-deductible. The investment growth, called the Accumulated Income Payment (AIP), in this transfer scenario, is taxable at your marginal tax rate plus an additional 20%. However, if you have RRSP contribution room, you can potentially defer some of the tax by transferring up to $50,000 of the AIP from the RESP to your RRSP.

There are many other qualifying schools and programs
Even if your child isn’t interested in attending post-secondary school, there are many other RESP qualifying schools and programs. These include trade schools, hair stylist programs and CEGEPs in Quebec. The Government of Canada website has a complete list of designated educational institutions

RESP rollovers to an RDSP

RESP investment earnings can be rolled over tax-free to a Registered Disability Savings Plan (RDSP) if the beneficiary is also the holder of that plan and has available room.

To qualify, the beneficiary can no longer be able to pursue post-secondary education due to a long-term disability. Alternatively, the RESP has already been in existence for at least 35 years, or the beneficiary has turned 21.

When the rollover of investment earnings occurs, RESP contributions are returned to the subscriber, government grants repaid, and the plan closed.

Death of a beneficiary

What happens to family and individual RESPs if a beneficiary unexpectedly passes away?

With a family plan, there are two options. First, the funds could be paid out to the subscriber who would be taxed on the earnings and would also have to return any grants. Second, it could be transferred to another beneficiary in the plan if they have available contribution and grant room.

An individual plan has similar options to return the funds to the subscriber, repay the grants to the government, or allocate them to another eligible beneficiary, but with slight differences. If the new beneficiary is under 21 years of age, the entire assets can be transferred to him or her without affecting their contribution or grant room.

Death of a subscriber

In the event a subscriber dies, contributions are permitted to continue from their estate, or a new subscriber can be named to carry on contributing and take over the RESP. It depends on the final wishes of the deceased subscriber as set out in their Will, and the executor of the estate.

Professional legal advice should be sought if this situation arises. If contributions continue from the estate, or an alternative subscriber is named to continue the plan, then it would not go through probate. But if the RESP is collapsed and included in the estate, then probate rules apply.

An Edward Jones advisor can talk to you more about estate planning.

Tax implications for withdrawals and contributions

When your children begin their post-secondary education and make RESP withdrawals, the contributions you made come out tax-free. That’s because your contributions weren’t tax-deductible so you’ve already paid taxes on the money.

The investment earnings and government grants that are withdraw are called Education Assistance Payments (EAPs). EAPs will be included in their income for the year, but as students, they will be in a lower tax bracket or pay no tax at all.

If a child decides not to pursue post-secondary education, you can withdraw your contributions tax-free. However, the investment growth, called an Accumulated Income Payment (AIP) in this withdrawal scenario for tax purposes, is taxable at your marginal tax rate plus an additional 20%. If you have RRSP contribution room, you can potentially defer some of the tax by transferring up to $50,000 of the AIP from the RESP to your RRSP. CESG grants can be transferred to an eligible beneficiary in some instances or will have to be repaid. CLBs will also have to be returned.

An Edward Jones financial advisor is available to walk you through the finer details of RESPs.

Child Education Savings Grant (CESG)

Through a CESG, the federal government matches 20% of the first $2,500 you save for every child annually in an RESP. This is up to a total of $500 a year and $7,200 over the lifetime of the plan. You can also carry forward any unused grant room to future years.

If the child decides not to pursue post-secondary education, you can transfer the CESG to their sibling in a family plan providing they still have grant room. If they don’t, you’ll have to repay the CESG to the government and pay taxes on the investment earnings. In an individual plan, if the new beneficiary is under 21 the entire CESG can be transferred to him or her without affecting their contribution or grant room.

CESGs have age restrictions you should be aware of. CESGs are only available for matching up until the end of the calendar year when the child turns 17. Overall though, CESGs remain a key component of RESPs and its recommended you take full advantage of the additional savings. During the lifetime of an RESP, the CESG can add up to a significant amount to assist parents in funding their children’s education.

Canada Learning Bond (CLB)

An additional incentive to start saving early for a child’s future post-secondary education through an RESP is the CLB.

Unlike the CESG, which is available to all RESPs, the federal government specifically offers the CLB to low-income families for children born after January 1, 2004. The CLB provides an initial $500 lump sum, plus $100 per year until the child turns 15, up to a maximum of $2,000 over the lifetime of the plan.

Money is deposited to the RESP for every eligible child annually even if the parents don’t make any contributions. Applying for and receiving the CLB doesn’t affect any other benefits the parents or child receive. If a child decides not to pursue post-secondary education, the CLB has to be repaid to the government.

An Edward Jones advisor can talk to you more about CLBs and other grants.

Benefits of opening an RESP

  • Tax-deferred investment growth
  • Less or no tax when beneficiaries make withdrawals for post-secondary education
  • Government contributions through CESG, CLB and other grants
  • Flexibility to transfer funds to another beneficiary
  • Anyone can contribute to an individual RESP and anyone can be a beneficiary
  • A long list of eligible educational institutions
  • Can be used for course fees, textbooks, student rent and transportation
  • Most types of investments available, including mutual funds, GICs, stocks and bonds
  • No annual contribution limit to keep track of
  • Large lifetime maximum of $50,000 per child
  • Contributions for up to 31 years
  • Can be open for 35 years

RESP drawbacks

  • Not tax-deductible like RRSPs
  • Government grants can be clawed back if child doesn’t pursue post-secondary education
  • There are penalties for over-contributing
  • You’re taxed and have to pay penalties if the money is withdrawn for non-educational purposes

An RESP is a great way to save for your children’s post-secondary education but keep in mind it’s simply an account. An RESP is not an investment or a comprehensive education planning strategy.

How we can help

What type of RESP should you open, how much should you contribute, what investments do you purchase, and what to do if your child doesn’t attend post-secondary school? These are just some of the important considerations an Edward Jones financial advisor can partner with you to address. Contact us today and let’s get started.