In Canada, the Registered Education Savings Plan (RESP) is a way for parents/grandparents (or even other family and friends) to save towards a Canadian Child’s post-secondary education; long term and tax free. I know some mamas/papas find it difficult to understand the program so I’m breaking it down step by step in this article. It’s important to note that you need to consult with your RESP provider to see if they have any additional policies in place as it relates to accessing and contributing to your child’s plan. Below are the key features of the plan:
Through the Canada Education Savings Grant (CESG) the government will match your annual contribution up to $2500 by 20%. So if you contribute $2500 per child per year the government will deposit $500 per child in grant money in your child’s RESP.
The max that the government will contribute to the plan is $7,200 in total; so to get all of this grant money you need to contribute $2500 per year, per child for at least 14 years with an extra $1000 contribution in year 15. However if you have less than $2,500, this should not stop you from contributing what you have as you can still get 20% of whatever you contribute with carryover room to claim grant money in future years as long as the child is still eligible (year 17)
Tip: avoid over-contributing as the grant only applies up to $50,000 per child. So if you win the lottery and immediately deposit $50,000 into your child’s RESP you will not get the full amount of government grants. You will likely only get the $500 for that year and then matching will stop.
Children from low income households with an open RESP can also get money from the Canada Learning Bond (CLB) without the parents even having to contribute.
With the CLB, the Government of Canada contributes up to $2,000 to an RESP for an eligible child. This includes:
- $500 for the first year of eligibility
- $100 each year the child continues to be eligible (up to and including the benefit year in which they turn 15)
Types of Plans
Individual Plan- one beneficiary per RESP account. If child chooses not to pursue post secondary education the Government grants have to be repaid and the parent contributions can be transferred to their Registered Retirement Savings Plan (RRSP)
Family Plan- multiple beneficiaries per RESP account. If one child chooses not to pursue post secondary education their benefit amount can be transferred to other siblings in the plan. Any unused contribution amounts can also be transferred to the parents RRSP. Beneficiaries must all be related to the contributor and or formally adopted.
Group Plans - one beneficiary per RESP account but multiple investors paying into the plan. Speak to your RESP provider/promoter about the terms of your contributions. You may be penalized for missing a contribution under these plans.
RESPs remain open for up to 36 years from the date they were created so there are several years to convince your child to pursue post secondary education whether university or apprenticeship based.
If you’re interested in opening a straightforward RESP plan for your child/children you can checkout Wealthsimple and use this link to have your first $10,000 managed for free for a year. Wealthsimple makes investing easy and affordable – sign up now and get $10,000 managed for free for one year.
Additional Sources:
- The RESP explained by the government of Canada: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-education-savings-plans-resps/resp-works.html
- The RESP explained by Wealthsimple: https://www.wealthsimple.com/en-ca/learn/what-is-resp
