RESP and Education Savings in Canada

The Registered Education Savings Plan (RESP) is a tax-advantaged savings account designed to help Canadians save for a child’s post-secondary education. With generous government grants, it is one of the best savings vehicles available to families.

How RESPs Work

Contributions to an RESP are not tax-deductible, but investment growth within the plan is tax-sheltered until withdrawn. When the beneficiary (student) withdraws funds for education, the growth and grant portions are taxed in the student’s hands — typically at a very low rate due to their limited income.

Contribution Limits

• Lifetime limit per beneficiary: $50,000
• No annual limit — you can contribute up to $50,000 at once, though grant maximization requires a different strategy
• Over-contribution penalty: 1% per month on excess amounts

Canada Education Savings Grant (CESG)

The federal government matches RESP contributions through the CESG:

• Basic CESG: 20% on the first $2,500 contributed per year, per beneficiary — up to $500/year
• Lifetime CESG maximum: $7,200 per beneficiary
• Additional CESG: Low- and middle-income families may receive an extra 10-20% on the first $500 contributed

To maximize the CESG, contribute at least $2,500 per year per beneficiary. If you missed years, you can catch up: the government will match up to $1,000 in CESG per year (based on $5,000 in contributions) to make up for missed grant years.

Canada Learning Bond (CLB)

The CLB provides additional savings for children from low-income families:

• $500 initial payment when the RESP is opened
• $100 per year for each year of eligibility until age 15
• Maximum $2,000 per beneficiary
• No personal contribution required — the family just needs to open an RESP

Types of RESPs

• Individual RESP: One beneficiary, who can be anyone (including yourself)
• Family RESP: Multiple beneficiaries who must be related to the subscriber (children, grandchildren)
• Group RESP: Pooled plan managed by a scholarship plan dealer — generally less flexible and comes with higher fees

Withdrawals for Education

When the beneficiary enrolls in a qualifying post-secondary program, two types of withdrawals are available:

• Educational Assistance Payments (EAPs): Consist of government grants and investment earnings. Taxable to the student.
• Post-Secondary Education (PSE) withdrawals: Return of original contributions. Not taxable (since contributions were made with after-tax dollars).

There is no limit on PSE withdrawals. EAPs are limited to $8,000 for full-time students in the first 13 consecutive weeks of enrollment, with no limit after that.

What If the Child Does Not Attend School

If your beneficiary does not pursue post-secondary education, you have options:

• Transfer to another beneficiary (a sibling, for example)
• Transfer up to $50,000 of earnings to your RRSP (if you have contribution room)
• Withdraw the earnings as an Accumulated Income Payment (AIP), subject to your marginal tax rate plus a 20% penalty tax
• Return the grants to the government

Tax Benefits Summary

• Contributions: Not deductible, but grow tax-free
• Government grants: Free money (up to $7,200 CESG + $2,000 CLB)
• Student withdrawals: Taxed at the student’s rate (often $0 due to basic personal amount)

Sources

• CRA — Registered Education Savings Plans
• Government of Canada — Canada Education Savings Grant
• Government of Canada — Canada Learning Bond