One way to give your child a head start in life is to save for their education. The Registered Education Saving Plan (RESP) allows you to put money aside for education and enjoy tax benefits from the Canadian government.
This guide covers everything you need to know about the RESP in Canada. We cover the different types of RESPs, how to open an RESP account, and the grants you can get through the RESP. We also answer the biggest question. What do you do if your child does not use the savings in the RESP for education purposes? Actually, there are some great options.
- What is a Registered Education Savings Plan?
- Where to open an RESP
- Types of Registered Education Savings Plans
- How the RESP works
- The Canadian Education Savings Grant explained
- Other government grants for RESPs
- RESP contribution limits
- Withdrawing from a Registered Education Savings Plan
- RESP withdrawal limits
- What happens if a child does not attend post-secondary education?
- Benefits of opening a RESP
- RESP vs RRSP vs TFSA
- Frequently Asked Questions
What is a Registered Education Savings Plan?
The Registered Education Savings Plan is a registered account, like the registered retirement savings plan (RRSP) and the tax-free savings account (TSFA). However, the RESP differs from the registered retirement savings plan (RRSP) and tax-free savings account (TFSA) in many ways, which will be discussed later in this guide.
Most Canadians refer to the Registered Education Savings Plan as the RESP. The Canadian government created the RESP to allow Canadians to save for post-secondary education. Education after high school can be expensive. Saving through the RESP helps you cover school expenses for college, university, or apprenticeship programs.
Read more about RRSPs
Where to open an RESP
You can open an RESP with a traditional bank, a credit union, an insurance company, a trust, or an investment company. Different RESP providers offer varying terms on their plans. For example, the fees, minimum contribution amount, or withdrawal penalties can differ across RESP promoters.
Usually, opening a RESP is free, but if you invest in financial assets, you may need to pay investment management fees. You can simply walk into any traditional bank, such as RBC, TD Bank, CIBC, Scotia Bank, BMO, etc., or a credit union around you to open an RESP. The internet age has also made it easy to open an RESP online.
Open an RESP with a Canadian online broker
For those who want to manage their RESP account on their own, keep in mind that most Canadian online brokers offer RESP accounts. Here are some of the cheapest online brokers offering RESP accounts in Canada :
National Bank Direct Brokerage
National Bank Direct Brokerage (NBDB) is affiliated with a bank but offers zero-commission trades on ETFs and stock trades. You can open a RESPngs plan with the brokerage and start investing in the financial market to grow education savings for you or your child. National bank direct brokerage does not have a minimum balance requirement to open an RESP.
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Opening a Qtrade RESP allows you to purchase options, stocks, and mutual funds with commission fees ranging from $6.95 to $8.75. Qtrade provides free trades on select U.S and Canadian listed exchange-traded funds (ETFs). When you open an RESP account with Qtrade, you can buy and sell ETFs for free across different regions and industries. Their free ETFs also include responsible investing options.
When you open an RESP with the Questrade self-directed investing option, you can buy ETFs for free. However, you need to pay fees to sell your ETFs. Trade stocks and sell ETFs in your RESP investment portfolio for fees ranging from $4.95 to $9.95.
Open a RESP account with a Canadian robo-advisor
You can by-pass the high management fees that traditional banks charge to manage investments in your RESP even if you have no knowledge on managing or re-balancing an investment portfolio.
With the help of robo-advisors, you can automate your RESP investments through digital and automated indexed-investments with minimal human interaction. You would need to provide information on your risk appetite and investment goals.
These robo-advisors allow you open an RESP in Canada:
You can open an RESP through a managed Wealthsimple account that operates as a robo-advisor. With a managed Wealthsimple account, you pay management fees as low as 0.4% to 0.5%. You will get a personalized portfolio with expert financial advice and re-balancing.
Questwealth Portfolios by Questrade
You can open an RESP with Questrade either through their self-directed investing option or a managed investment option. Questrade offers a managed investing option with management fees as low as 0.2% to 0.25% through their Questwealth Portfolios platform. This management fee, in addition to other portfolio fees, can add up to a total management expense ratio fee of about 0.35%.
Qtrade Guided Portfolios (formerly VirtualWealth)
Qtrade Guided Portfolios (formerly known as VirtualWealth) is a portfolio option managed by Qtrade. If you would rather have your RESP investments managed passively, then Qtrade Guided Portfolios is a great choice. Qtrade Guided Portfolios management fees range from 0.35% to 0.6% and you can invest in low-cost mutual funds and exchange-traded funds. Average management expense ratio fees for investment funds range from 0.15% to 0.96% depending on if you have an ETF portfolio or a responsible investing portfolio.
Types of Registered Education Savings Plans
In Canada, you can open three types of RESP. Financial institutions offer RESPs either as an individual plan, a family plan, or a group plan. The type of RESP you open depends on your specific needs. Keep reading to find out more about each plan.
If you want to open an RESP for your child, sibling, or another family member, you can open an individual RESP. Even if you are not related to a child, you can still open an RESP for them using the individual RESP. You can also use an individual RESP to save for your education expenses. However, you may not be eligible for the Canada Education Savings Grant.
The family RESP caters to families that need to open an RESP account for multiple children. In a family RESP, the beneficiaries can use the contributions for their education-related expenses and share the government grants in the plan.
To open a family RESP, you must be related to the RESP beneficiary by blood or adoption. While family members like cousins, aunts, and uncles can open an individual RESP for a child, this is not the case for the family RESP.
If you want to open a family Registered Education Savings Plan, you must be the parent, grandparent, or step-parent by blood or adoption of the beneficiaries. You can also open a family RESP for your brother or sister.
Some financial institutions offer group RESPs. You can only open a group RESP for one child. Through a group RESP, different people pool money to save for their children’s post-secondary education expenses.
The beneficiaries in a group RESP share the pooled funds in the plan based on their age group and when they are enrolled in school. When your child needs to withdraw money for post-secondary education, the money you receive from the group RESP will depend on the total money in the group account.
How the RESP works
Financial institutions such as banks, credit unions, brokerages, insurance companies etc., allow you to open Registered Education Savings Plans. The financial institution you open your RESP with is your RESP promoter or provider.
When you open an RESP, you are the ‘Subscriber’ of the plan. If you open the RESP for a child, the child is the ‘Beneficiary’ of the plan. You can also be the beneficiary of the plan if the plan is for your post-secondary education.
First, you must provide the social insurance number (SIN) for yourself and the beneficiary before you can open an RESP. Second, you need to provide proof of identification, such as a government-issued identification card. RESP providers usually request additional information such as your address or proof of residency in Canada.
There is no annual limit for the RESP contribution, and you can contribute any amount subject to the lifetime contribution limit of $50,000. Also, RESPs can remain open for up to 36 years, and you can make contributions to an RESP for up to 31 years after you open one.
RESP eligible investment products
Through the Registered Education Savings Plan, you can invest in investment assets such as mutual funds, guaranteed investment certificates (GICs), stocks, bonds, and exchange-traded funds (ETFs). The Canada Revenue Agency (CRA) does not tax investment income you earn in your RESP, provided that you do not withdraw it and it remains in the account.
The tax advantage of the RESP is not the only benefit you get when you open an account. You can receive education savings grants from the Canadian government for your eligible contributions to an RESP. One of the main grants you can get from the government is the Canadian Education Savings Grant. Mostly known as the CESG, here’s how the education savings grant works.
Learn more about ETFs
The Canadian Education Savings Grant explained
The Canadian government provides some support in paying for your child’s post-secondary school education through the Canada Education Savings Grant linked to the RESP. To be eligible for the CESG, a beneficiary must be a Canadian resident, have an SIN, and contribute to an RESP. Beneficiaries older than 17 years are not eligible for the Canadian Education Savings Grant.
If your child is 16 or 17 years old, to become eligible to receive the Canada Education Savings Grant, they must have at least a $2,000 contribution in their RESP. They can also qualify with a minimum annual contribution of $100 made to their RESP in any four previous years.
Your child can be a full or part-time university, college, trade school, or apprenticeship program student in Canada. Before you enroll in a post-secondary program, you ensure that the Canadian government has designated the school as eligible for the Canadian Education Savings Grant.
The Canadian Education Savings Grant consists of a basic amount and an additional amount.
Your household net income does not impact the government’s decision to give you the CESG basic amount. However, to qualify for the additional Canadian Education Savings Grant amount, your household income needs to fall within specified income brackets that change over time.
The basic CESG amount
The basic CESG amount you receive when you make eligible RESP contributions is 20 percent of your contributions up to an annual limit of $500 for each beneficiary. This means that to get the maximum $500 grant, you must contribute up to $2,500 for your eligible child.
The CRA calculates the additional CESG using three net income level brackets. You can receive an additional 10 to 20 percent of your first $500 contributed to your RESP. The amount of additional CESG you can receive depends on your net income.
If you fall within the lower-income bracket, you can get up to 20 percent of the first $500 contributed to the RESP as an additional CESG. If your net income surpasses the lower bracket, you may qualify for an additional grant in the middle-income bracket which allows for up to 10 percent on the first $500 RESP contribution. A net income in the upper-income bracket is not eligible for the additional CESG.
The CRA allows you to catch up on your RESP contribution in order to get the CESG. If for some reason you were not able to contribute up to $2,500 in a year, you can carry the CESG grant forward until your child becomes 17 years of age. You can carry the grant forward even if your child is not yet an RESP beneficiary.
Lifetime limits to the CESG
The Canadian Education Savings Grant and the additional grant have a lifetime limit of $7,200 for every beneficiary. The maximum grant that you can receive in a year is $1,000. To get the $500 annual grant plus the $500 catch-up grant, you need to contribute $5,000 to the RESP for eligible beneficiaries. Remember that if you do not have carried forward grant, the maximum grant you can receive is $500.
Also, it is important to note that you can only carry forward the unused basic Canada Education Savings Grant. The CRA does not allow you to carry over unused additional CESG.
You do not automatically receive the CESG; you will need to fill out an application form through your RESP promoter. When your application is approved, you will receive your grant in your RESP.
Other government grants for RESPs
Other government grants you can receive in your RESP are the Canada Learning Bond, the Quebec education savings incentive (QESI), and the British Columbia Training and Education Savings Grant Program (BCTESG).
Canadian Learning Bond
The Canada Learning Bond, also known as the CLB, is also part of the Canada education savings program. The CLB provides additional education funding for low-income families. Unlike the CESG Canadian Education Savings Grant, you do not need to contribute your RESP to receive the CLB. Eligible beneficiaries can get up to $2,000 from the Canadian government through the Canadian Learning Bond.
The CRA determines your eligibility for a CLB based on your household income and the number of qualified children in your family. If your child qualifies for the Canada Learning Bond, they will receive $500 in the first year and $100 for every year they are eligible until they turn 15 years of age.
Provincial Education Savings Programs
Some provincial programs provide incentives for you to save for post-secondary education using the RESP. If you are a resident of Quebec, British Columbia, you can get more money for your child’s education.
The Quebec education savings incentive (QESI) operates as a refundable tax credit that you receive directly into your RESP. You can apply to the Revenu Québec for the QESI through the trustee of your Registered Education Savings Plan.
You cannot send an application yourself, and your RESP provider needs to be designated to participate in the program. To receive the Quebec education savings incentive, the trustee of your RESP must send in an application within three years after the year you contributed to the RESP.
If you are a British Columbia resident at the end of the year, the provincial government offers up to $1,200 through the BC Training and Education Savings Grant Program (BCTESG). While you do not need to make contributions to your RESP to qualify for this grant, your RESP must be with a BCTESG partner that offers the grant.
Saskatchewan residents previously received the Saskatchewan Advantage Grant for Education Savings (SAGES). However, this program has been suspended since 2018.
RESP contribution limits
RESPs have a lifetime $50,000 contribution limit. You can open as many RESPs as you want; you just need to ensure that your contributions per beneficiary do not exceed the $50,000 limit.
Excess contributions to a Registered Education Savings Plan attract a one percent tax for each month it remains in the account until you withdraw it. The Canada Revenue Agency determines an RESP over-contribution by considering every contribution you have made to the plan, even if you have withdrawn it from the plan.
Withdrawing from a Registered Education Savings Plan
Only the person who set up the RESP is allowed to request a withdrawal on behalf of the RESP beneficiary. Your RESP provider administers payments from the plan. Some RESP providers will ask you to show proof that the beneficiary of the RESP is enrolled in a post-secondary education program such as a college, university, vocational program, or trades program.
You can use withdrawals from an RESP to pay for the beneficiary’s tuition fees, transportation, books, accommodation, etc. The RESP provider may ask you to show proof of eligible expenses, and this can vary across financial institutions.
When your child, who is the beneficiary of an RESP, is ready to pay for school expenses, you can receive payments from the RESP as an Educational Assistance Payment (EAP) or a Post-Secondary Education Payment (PSE).
Withdrawals from your original contributions to the RESP are called post-secondary education withdrawals (PSE withdrawals). When you withdraw post-secondary education payments, you do not pay taxes to the CRA. Either you or the RESP beneficiary can receive post-secondary education payments.
When you withdraw from the government grants, such as the Canada Learning Bond, provincial grants, and the Canada Education Savings Grant, or investment income earned in your RESP, the payments you receive are called education assistance payments.
Only the RESP beneficiary can receive educational assistance payments. Consequently, the CRA taxes the RESP withdrawals in the hands of the beneficiary. Typically, as students, RESP beneficiaries have low tax brackets, and taxes on the withdrawals would be minimal. RESP beneficiaries can receive RESP payments for up to six months after their program has ended, subject to being approved for eligible expenses.
The Canadian government applies certain limits to how much you can withdraw as educational assistance payments.
RESP withdrawal limits
You can withdraw any amount through post-secondary education payments up to your total contributions. However, educational assistance payments are subject to withdrawal limits.
A full-time student has a $5,000 educational assistance payment withdrawal limit for the first 13 weeks of their school program. After this limit, the student can request to withdraw any amount through the educational assistance payments. If, however, the student decides to take a break of up to a year, the original $5,000 will be reinstated.
Part-time students have a different educational assistance payments withdrawal limit. As a part-time student, an RESP beneficiary can withdraw up to $2,500 every 13 weeks of being enrolled in a post-secondary program.
Sometimes, school expenses go overboard, and if the withdrawal limits don’t work for your child’s education, you can apply to the Minister of Employment and Social Development. Your RESP provider sends a request on your behalf. If the request gets approved, the provider completes a request form and submits it to the Canada Education Savings Program.
The RESP and EAP relationship
There is also an annual EAP threshold which can limit how much you receive as educational assistance payments every year. The annual EAP limit of $20,000 was introduced in 2008. However, the limit is indexed for inflation and thus changes every year. The annual educational assistance payments limit for 2021 is $24,676. For 2022, the limit is $25,268.
Another limit you need to be aware of is the Canada education savings grants withdrawal limit as part of the educational assistance payment. As stated earlier in this guide, RESP beneficiaries cannot receive more than $7,200 in grants through the CESG.
It can be tasking to track your educational assistance payments received through the Canada Education Savings Grant. The CRA notifies you of any Canadian Education Savings Grant payments included in your withdrawals. It is important to track your CESG payments and repay any amounts that exceed the $7,200 limit.
For example, if you request to withdraw $15,000 from the educational assistance payments on your child’s behalf, and this results in an accumulated Canadian Education Savings Grant received so far of $8,000, you will need to pay back $800 to the Canadian government.
What happens if a child does not attend post-secondary education?
Many people worry about what happens to their RESP contributions if their child does not end up attending a post-secondary school program. If this happens, you have a couple of options.
First, you can leave the contributions in the plan, provided that 35 years have not passed after the year you opened the account (36 years in total).
You can also replace the beneficiary of the RESP if your plan and your provider allow it. For family plans, you can use the money in the RESP to pay for another child that is also a beneficiary of the plan.
Thirdly, you have the option to transfer up to $50,000 to your Registered Retirement Savings Plan (RRSP) or a Registered Disability Savings Plan (RDSP). Certain conditions apply if you opt to transfer your RESP savings to an RRSP or RDSP.
For example, the RESP must have been open for at least 10 years. Additionally, all beneficiaries in the plan must be at least 21 and not currently enrolled in post-secondary education. You will need to have an available RRSP contribution room to transfer money to your RRSP from a closed RESP.
When you close a Registered Education Savings Plan, you get to keep your contributions without tax implications. However, you must return any remaining government grants as you can use these payments for only eligible post-secondary education programs.
Benefits of opening a RESP
Save up for education
With a Registered Education Savings Plan, you get to save money towards post-secondary education. Having a pool of funds takes off financial pressures when you or your child eventually get to go to school. A dedicated savings account for education prevents you from spending your savings for other purposes. You can also evaluate how much you have for education purposes and how much you fall short of what you need to cover the total school expenses.
Grow your savings
Your RESP provider can invest your savings in financial assets that can earn investment income over time. Even better, you do not have to report your investment income in the account or pay taxes on it as long as it remains in the account.
Free money from the government
One of the unique benefits of opening a Registered Education Savings Plan and making contributions to it is that you can get money from the Canadian government through a Canadian Education Savings Grant (CESG), the Canadian Learning Bond (CLB), and other provincial grants.
Lower taxes on RESP withdrawals
When you withdraw investment income or government grants from your RESP, you will need to pay taxes to the CRA. If you use the withdrawals for an eligible beneficiary’s post-secondary education program, the CRA will tax the withdrawals using the child’s tax rate.
Essentially, your family will pay lower taxes on the RESP withdrawals because students have little or no tax liabilities due to their lower tax brackets.
RESP vs RRSP vs TFSA
The Registered Education Savings Plan (RESP) is also a registered account like the registered retirement savings plan (RRSP) and the tax-free savings account (TFSA) but differs in a number of ways. With all three registered accounts, you can invest your money in allowable investment assets and grow your savings.
The TFSA is more flexible, and you can use it to save for general purposes, including education. However, using an RESP to save for post-secondary education gives you access to the Canada learning bond and other government grants that the TFSA does not provide. With the TFSA, the CRA will not tax your investment income when you withdraw it from the account. This is not the case with an RESP. When you withdraw money from the RESP, investment income will be subject to tax. Also, you can leave your TFSA account open for life, but an RESP must be closed after 36 years.
The RRSP is best used to save money for retirement purposes, and you receive tax deductions for your contributions to an RRSP. The tax benefit on the RRSP is a deferral, and you will pay taxes when you withdraw money from the plan in retirement. While there is no tax deduction for contributions to the RESP, you can withdraw your original contributions without paying taxes.
Opening an RESP can be very beneficial. The tax benefits and free grant money from the government make it an excellent option for saving towards your child’s education. Make sure to take advantage of provincial grants and maximize the annual Canada Education Savings Grant you receive from the government.
Remember that you can open an RESP for yourself. You may not qualify to receive the CESG, but you have an additional registered account to grow your school savings tax-free. Your Canada Education Savings Account can come in handy if you do not have contribution room in your other tax-advantaged registered accounts.
Frequently Asked Questions
Yes, you can open an individual RESP for someone who is not your child. A public primary caregiver, guardian, uncle, or family friend can open an RESP for a child. However, to open a family RESP, you need to be related to the beneficiary by blood or adoption.
You can withdraw the money from your RESP at any time. However, if your withdrawals are not for the beneficiaries' education-related expenses after high school, you may be required to pay back government grants. The Canada revenue agency will tax educational assistance payments but not your contributions.
No, you do not need to have a bank account to open an RESP. You can open an RESP with any financial institution that offers this plan. However, when you want to withdraw from an RESP, you may need a bank account to deposit the payments from the plan.
Generally, to open a registered retirement savings plan, you need to be a Canadian resident with a valid social insurance number (SIN). The RESP beneficiary also needs to have a valid SIN. The RESP provider may request additional documentation and information when you want to open an RESP.
You can invest the money in your RESP in qualifying investment assets such as GICs, bonds, and stocks. Certain investment assets do not guarantee you principal investments and you can lose money if the assets lose value.
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About The Author: Emma Martin
Emma Martin writes about the curiosities of finance. Her obsession with cryptocurrency keeps her writing most days about the best exchanges and wallets, and the wild world of NFTs. Her favourite exchanges right now are Bitbuy, NDAX, and VirgoCX.
Emma also invests in the stock market using Wealthsimple Trade. Other than crypto, Emma spends her time with her dog Brutus and shopping online with her Mastercard® KOHO Prepaid Card.
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