How RESPs work
A Registered Education Savings Plan (RESP) is a dedicated savings plan to help you save for a child’s education after high school.
Most RESPs are opened for children, but you can open an RESP for yourself or another adult. The person who opens the plan is called the subscriber.
When your child enrols in post-secondary education, they can start taking payments, called educational assistance payments (EAPs) from their RESP. EAPs are made up of the investment earnings and government grant money in the RESP. The person who is named to receive EAPs under the plan is called the beneficiary.
7 things to know about RESPs
- Your savings grow tax free. There is no tax on the investment earnings, as long as they stay in the plan.
- If you save for a child age 17 and under, the federal government also puts money into the RESP as a grant or bond. In some provinces, the provincial government may contribute too.
- You can usually put money in whenever you want, up to a lifetime maximum of $50,000 per child. But some plans require set monthly or annual contributions.
- The contributions are not tax deductible. But you can withdraw them tax free from the plan at any time for any reason.
- There is a wide range of investment options available for RESPs. Examples: stocks, bonds, mutual funds, GICs. Some plans let you decide how to invest your savings. Others invest your money for you.
- Your child can take money out of the RESP when they enrol in university or college or another qualifying education program or specified education program.
- An RESP can stay open for up to 36 years. Under specified plan rules, the plan can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.
6 reasons to open an RESP
1. Government grants
The federal government adds to your RESP savings each year through the Canada Education Savings Grant. Lower-income families may also qualify for the Canada Learning Bond.
2. RESP savings grow tax free
You don’t pay tax on any investment earnings as long as they stay in the RESP. That means your savings can grow faster.
3. EAPs are taxable in the hands of the student
When your child enrols in post-secondary education, they can start taking payments, called educational assistance payments (EAPs), from their RESP. EAPs are made up of the investment earnings and government grant money in the RESP. Tax on EAPs is payable in the hands of your child — not you. Since students tend to have little or no income, they likely won’t have to pay much tax on the payments. Contributions can be withdrawn by you or by the student tax-free.
4. A variety of investment options
You can choose investments that best suit your investment objectives, risk tolerance, and time horizon. Different providers offer different investment options. Examples: stocks, bonds, mutual funds, GICs.
5. Friends and family can contribute
Anyone can set up an individual RESP for your child – not just you. Your child’s RESP can grow more quickly with contributions from friends and family. Consider encouraging monetary gifts on special occasions to contribute to your child’s RESP.
6. RESP accounts can stay open for 36 years
If your child chooses to defer their education plans after high school, they can still use the RESP money when they are ready to go back to school. But check the rules of your RESP to make sure there are no restrictions on waiting to continue their education. Under specified plan rules, RESP accounts for beneficiaries eligible for the disability tax credit can stay open for up to 40 years.