Summary: Canadian RESP Guide
A Registered Education Savings Plan (RESP) is one of the best ways to save for post-secondary education while benefiting from tax advantages and government incentives. Similar to a TFSA, an RESP is more than just a savings account, as an RESP allows contributions to grow tax-free while giving you access to government grants that boost your investment.
RESP Overview
An RESP is a government-regulated investment account designed to help parents (and legal guardians) save for a child’s post-secondary education. Contributions are made using post-tax dollars, meaning there are no immediate tax deductions. However, the real power of an RESP for most families comes from its tax-free growth and the Canada Education Savings Grant (CESG), which enhances contributions with free government money.
One thing that is important to note is that, unlike other registered savings accounts (TFSA, for example), an RESP can only be used for educational purposes, ensuring that the funds go directly towards tuition, books and other school-related expenses. An RESP account can remain open for up to 35 years, allowing flexibility if a child decides to delay their education, which is becoming more and more common.
Key Features of an RESP
One of the greatest benefits of an RESP is the government’s contribution through the CESG. For every dollar you contribute, the government adds 20% up to a maximum of $500 per year. This means that by contributing $2,500 annually, you receive the maximum grant available for that year. Over the lifetime of the RESP, the CESG can provide up to $7,200 per beneficiary.
Additionally, lower-income families may qualify for the Canada Learning Bond (CLB), which provides an initial grant of $500, followed by $100 per year until the child turns 15, for a total of $2,000 in additional funding. To be eligible to receive the CLB, you must be below a certain income threshold and it varies based on number of children. For more info on this, visit the Government of Canada website here.
RESPs also allow for flexible contributions, meaning that any family member, including grandparents, relatives, or even friends, can contribute. The total contribution limit per child is $50,000 over the plan’s lifetime. When selecting an RESP, it’s important to consider which type of plan best fits your specific family’s needs:
- Individual RESP: Suitable for a single beneficiary, ideal if you are saving for one child’s post-secondary education.
- Family RESP: Ideal for families with multiple children, allowing for flexible fund allocation. A Family RESP allows contributions for multiple children under one account. This not only provides more flexibility in withdrawals but also ensures that if one child decides not to pursue post-secondary education, the funds can be reallocated to another beneficiary.
RESP Government Grants and Incentives
As noted, the CESG is the primary government incentive for RESP contributions, offering a 20% match on contributions. If a family misses contributions in previous years, they can carry forward unused CESG room and receive up to $1,000 per year in grant money by doubling contributions in a given year. This allows parents to catch up on missed contributions by investing more than $2,500 in a single year and maximizing available government grants.
In addition to the CESG, some provinces provide extra financial support through additional grants:
- Quebec Education Savings Incentive (QESI) provides up to $3,600 in additional grants for eligible beneficiaries.
- British Columbia Training and Education Savings Grant (BCTESG) offers a one-time $1,200 grant for children who meet eligibility requirements.
By taking advantage of both federal and provincial grants, families can maximize their RESP savings, ensuring they get the most financial support for their child’s education.
How RESP Withdrawals Work for Education Expenses
When a student enrolls in a qualifying post-secondary program, they can access RESP funds through Educational Assistance Payments (EAPs), which consist of investment earnings and government grants. These withdrawals are taxed in the student’s hands, making them highly tax-efficient since students typically fall into a lower tax bracket. Meanwhile, the original contributions made by parents can be withdrawn tax-free, as they were made with after-tax dollars. This structure provides families with a flexible and tax-advantaged way to fund post-secondary education.
RESP Strategies & Compound Growth
The earlier you start contributing to an RESP, the longer your investment has to grow. Since all earnings within the RESP grow tax-free, an early start allows your contributions to benefit from compound growth over 10, 15 or even 20 years. This can result in significantly higher savings compared to starting later.
RESPs offer a range of investment options, including mutual funds, stocks, bonds, GICs and ETFs. Diversifying your RESP portfolio can help manage risk while maximizing potential returns over time.To put this into perspective with some potential returns, let’s give a snapshot on the power of the CESG (and also the power of front-loading).
For this example, we are assuming a 5% compound annual growth rate (CAGR).
| Year | Total Contributions | CESG (20%) | Total RESP Value |
| 1 | $2,500 | $500 | $3,150 |
| 5 | $12,500 | $2,500 | $15,900 |
| 10 | $25,000 | $5,000 | $34,100 |
| 15 | $37,500 | $7,200 (max) | $55,200 |
With the benefit of the CESG and consistent annual contributions, the compound growth can be great. There is another technique, however, which is front-loading it. Here is how that math breaks down (using that same 5% CAGR):
| Year | Total Contributions | CESG (20%) | Total RESP Value |
| 1 | $50,000 | $500 | $53,025 |
| 5 | $50,000 (the initial contribution) | $500 (the initial CESG) | $64,452.22 |
| 10 | $50,000 (the initial contribution) | $500 (the initial CESG) | $82,259.18 |
| 15 | $50,000 (the initial contribution) | $500 (the initial CESG) | $104,985.87 |
Crazy, right? Well, that’s the power of compounding.
Final Thoughts
It’s clear that an RESP is an effective tool for families to save and invest for their child’s future, but the real question is whether or not you should front-load your contributions, assuming you’re able to. Based on the math we outlined, that’s the clear winner, but it comes down to what makes sense for your specific financial situation. If you can’t front-load immediately, you can take advantage of the government grants, then max it out when possible.
