There’s no doubt that one of the most fulfilling responsibilities is being a parent. Children represent the future, and planning for your child’s success can be a challenge – especially with the seemingly limitless potential careers they can choose.
As our RRSP, TFSA, and FHSA guides have shown, there are many financial vehicles for building wealth in Canada. Preparing for your children’s future is no different. So, what tool(s) can you use to instill these values in your children and help them finance their education?
If you want to give your child a good start, look no further. This article explains the most advantageous savings program in Canada for saving for your child’s post-secondary education: the Registered Education Savings Plan (RESP).
The Registered Education Savings Plan (RESP) is a savings account designed to finance your child’s future post-secondary education, whether it’s university, college, trade school, or vocational training.
Like RRSPs, TFSAs and FHSAs, RESPs are tax-advantaged education savings accounts that let you invest and grow tax-free. In fact, you don’t have to pay taxes on returns (capital gains, interest or dividends) as long as the money remains in the RESP.
In addition, RESP contributions are eligible for government grants from the federal government and some provincial governments (e.g., the QESI in Quebec). Additional subsidies are also available for low-income families, under certain conditions.
A Registered Education Savings Plan (RESP) is a contract between a subscriber (parent) and a promoter (financial institution) to make Educational Assistance Payments (EAPs) to a beneficiary (child) for post-secondary education.
Specifically:
The contributions belong to the policyholder (usually the parents). While the grants and interest accumulated in the RESP belong to the beneficiary (the child). However, the subscriber may, if he or she wishes, request that contributions be withdrawn from the RESP tax-free and paid to the beneficiary.
Once the beneficiary has been accepted by and is attending an eligible post-secondary institution, the promoter pays him or her Educational Assistance Payments (EAP).
As mentioned earlier, EAPs include money from grants and accumulated interest. EAPs are considered income for the beneficiary, and will therefore be taxed in the child’s name. However, since children generally don’t have much income during their studies, they will pay little to no tax on these EAPs.
There are three types of RESP accounts you can open to help finance your child’s post-secondary education: the Individual RESP, the Family RESP and the Group RESP. The most common types of RESPs are the Individual and Family RESPs, because they are simple to use (limits and constraints) and generally have lower fees.
Here’s a breakdown of how the different types of RESPs work…
An individual RESP lets you save for the education of a single beneficiary. This plan is ideal for a family with just one child, or for someone who is not directly related to the beneficiary. For example, the beneficiary of an individual RESP could be your child, your grandchild, your nephew/niece, your best friend’s child, and so on.
You can open an individual RESP at a financial institution, chartered bank, credit union, trust company or insurance company.
A family RESP lets you save for the education of several beneficiaries. It’s particularly advantageous if you have more than one child, as you can designate funds for multiple children, and easily move money from one child to the next (for example, if one of your children does not pursue post-secondary education).
One condition is that the RESP subscriber must be related by blood or be the adoptive parent of the beneficiary. This includes your children, stepchildren, grandchildren and siblings.
As with an Individual RESP, a Family RESP can be opened at a financial institution, chartered bank, credit union, trust company, or insurance company.
Like the Individual plan, the Group plan is intended for a single beneficiary, who need not be related to you. Your money is pooled with several subscribers and is generally invested in low-risk, fixed-return investments.
The amount you receive depends on how much money is in the group account and how many children in the group will be entering post-secondary education. Note that each group RESP has its own rules and regulations. Examples of group plans are : Kaleido (formerly Universitas), CST Savings and Heritage Education Fund.
While there are more conditions and restrictions with a group plan, it can be less stressful for many parents to determine an amount they want to save in the RESP and let the investments grow on “autopilot”.
Here are the main advantages of opening a Registered Education Savings Plan (RESP) to save for your child’s post-secondary education.
Post-secondary education can be expensive. For a Canadian undergraduate, the average cost of tuition and living expenses is $6,834 in 2022-2023. For a Canadian graduate student, these costs will be closer to $7,437 in 2022-2023(source).
By saving in an RESP, you’re giving your child a head start on his or her peers. They won’t have to worry about student loans, and can focus on their studies to pursue a fulfilling career. Therefore, you give them a valuable tool in their pursuit of success.
When you save for your child’s education in an RESP, you can potentially save thousands of dollars on gains realized in the account (capital gains, interest and dividends).
Although the RESP beneficiary is subject to tax on withdrawals, a student’s income is generally so low that he or she will pay little to no tax. For example, if the student’s income is below the basic personal amount ($15,000 in Canada and $17,183 in Quebec in 2023), he or she will not pay income tax on RESP withdrawals.
This gives you the opportunity to invest in a wide range of investments. These include mutual funds, exchange-traded funds (ETFs), stocks, bonds, guaranteed investment certificates (GICs) (Tangerine GIC or EQ Bank GIC) and more.
RESP contributions are eligible for generous grants from both levels of government. These include the Canada Education Savings Grant (CESG), which provides up to $7,200, and the Quebec Education Savings Incentive (QESI), which provides up to $3,600.
Additional grants are also available for low-income families, such as the Canada Learning Bond (CLB), which provides up to $2,000, and the Additional CESG, calculated on the basis of family household income, which provides up to an additional $100.
Post-secondary education is undoubtedly an excellent path to follow, however it isn’t for everyone. RESPs offer excellent flexibility if you have a child who is not pursuing a post-secondary education. For example, you could name a new beneficiary by transferring the RESP to his or her name (if you have more than one child).
Keep in mind, however, that you may want to keep the RESP account open. In fact, if your child decides to pursue an education later in life, his or her RESP can remain open until the age of 35. As a last resort, you may decide to close the RESP, returning the grants to the government and transferring your contributions to your RRSP.
What’s more, the RESP gives you great flexibility in your investment choices. For example, you can invest in mutual funds, exchange-traded funds (ETFs), options, stocks, bonds, guaranteed investment certificates (GICs) (Tangerine GICs or EQ Bank GICs), and more.
The RESP has no annual contribution limit. However, government subsidies have annual limits and lifetime caps. To take full advantage of government grants (CESG and QESI), you must contribute $2,500 per year to the RESP.
While there is no annual contribution limit, there is a lifetime cumulative limit of $50,000 for a beneficiary. This limit must be respected if the beneficiary has more than one RESP. For example, if the parents and grandparents have each opened an RESP account for the child.
Tip: Contrary to popular belief, the $2,500 annual RESP contribution (to take full advantage of the grants) does not depend on the child’s date of birth. The annual contribution is calculated on the basis of the calendar year (January 1 to December 31). So, even if your child is born on November 15, 2022, you can still contribute $2,500 for 2022, then another $2,500 in 2023, and so on.
If you haven’t contributed to an RESP for one or more years, or if you haven’t taken advantage of the maximum government grants (by contributing $2,500/year to the RESP), you can catch up. However, catch-up contributions are limited to one year per calendar year.
Let’s use an example: your child is born in 2022 and you opened an RESP account in 2022. However, you only contributed $1,000 in 2022. This year, in 2023, you can contribute $4,000 to the RESP: $2,500 for the current year (2023) and $1,500 for the catch-up year (2022). This makes the $4,000 contribution fully eligible for government subsidies.
But don’t overcontribute to an RESP. Excess contributions have tax consequences for the policyholder. You will have to pay a tax of 1% per month on your excess contributions. This tax will continue until you withdraw the additional amount from the RESP. In addition, this tax must be paid within 90 days of the end of the year in which you made the excess contributions.
To encourage parents to save for their child’s post-secondary education in an RESP, the federal government and some provincial governments like Quebec offer generous grants. Grants are generally based on RESP contributions and, in some cases, on household income. They are paid directly into the beneficiary’s RESP account.
These include the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB) and the Quebec Education Savings Incentive (QESI).
Here’s more information on these grants…
The Canada Education Savings Grant (CESG) is paid directly into the beneficiary’s RESP account according to the contributions deposited.
The CESG allows you to obtain a maximum of $500 per year for an RESP. The maximum lifetime CESG is $7,200. In addition, children from middle- and low-income families can obtain up to $100 in additional subsidies.
The CESG is calculated in two stages:
Annual adjusted family income* in 2023
**The basic CESG (20%) is calculated on the first $2,500 contributed to the RESP.
***The additional CESG (10% or 20%) is calculated on the first $500 contributed to the RESP.
Unclaimed CESG grants accumulate and are carried forward to the following year. To obtain it in subsequent years, you can catch up on this grant by making additional contributions to the RESP (see “Catching up on contributions”).
To be eligible for the CESG, the child must be a Canadian resident, have a social insurance number, be 17 years of age or under, and be the beneficiary of an RESP.
The Canada Learning Bond (CLB) is paid directly into the eligible beneficiary’s RESP account, with no contribution required from the subscriber. Beneficiaries eligible for the CLB can receive $500 the first year and an additional $100 each year until they turn 15. As a result, the subsidy can reach a lifetime maximum of $2,000.
Good News… The CLB is retroactive. CLB amounts accumulate each year until the beneficiary turns 15. The CLB can be applied for by the primary guardian of an eligible child up to the age of 18. The child can then open an RESP and apply for the CLB until the age of 21.
As mentioned above, no RESP contribution is required to obtain the Canada Learning Bond (CLB). Eligibility for the CLB is based on the adjusted family income of the child’s primary guardian.
Here is the adjusted family income level to qualify for the CLB:
*Adjusted family income for the period from July 1, 2022 to June 30, 2023
To be eligible for the CLB, the child must be a Canadian resident, have a social insurance number, be the beneficiary of an RESP, be born on or after January 1, 2004, and come from a low-income family.
The Quebec Education Savings Incentive (QESI) is a tax measure designed to encourage families to save for the post-secondary education of their children and grandchildren.
The QESI allows you to obtain a maximum of $250 per year for an RESP. The lifetime maximum QESI is $3,600. In addition, children from middle- and low-income families can receive an additional amount of up to $50 per year.
The QESI is calculated in two stages:
*Annual family income in 2023
**The Basic QESI (10%) is calculated on the first $2,500 contributed to the RESP.
***The additional QESI (5% or 10%) is calculated on the first $500 contributed to the RESP.
To be eligible for the QESI, the child must reside in Quebec on December 31 of the taxation year, be under 18 years of age, have a social insurance number and be a beneficiary of an RESP.
To open a Registered Education Savings Plan (RESP), you must choose an authorized RESP promoter, such as a financial institution, chartered bank, credit union, trust company, or insurance company. The choice of promoter depends on the type of RESP you wish to open (see “Types of RESPs”).
Of course, you must ensure that your child has a valid social insurance number, and supporting documents such as a birth certificate.
If you decide to open a self-administered RESP account with an online broker (individual RESP or family RESP) such as Questrade or Qtrade Investissement Direct, you’ll be able to invest RESP deposits in eligible investments such as mutual funds, exchange-traded funds (ETFs), stocks and government or corporate bonds.
As mentioned above, you can open an RESP account with an authorized RESP promoter. Not all financial institutions offer RESPs or can apply for government grants.
A list of promoters offering Registered Education Savings Plans (RESPs) and administering federal grants (Basic CESG, Additional CESG and CLB) is available on the Government of Canada website.
For example:
However, make sure the Registered Education Savings Plan (RESP) promoter also participates in the Quebec Education Savings Incentive (QESI) tax measure. The list of RESP providers who administer the QESI is available on the Revenu Québec website. The example that comes up regularly is Wealthsimple, which is an authorized provider at the federal level (CESG, CLB), but not in Quebec (QESI).
Like an RRSP, TFSA or FHSA, an RESP is not an investment. Rather, it’s a savings account into which you can invest.
There are many eligible RESP investments:
These types of investments are offered through an RESP promoter, such as a financial institution, chartered bank, credit union, trust company, or insurance company.
Contributions belong to the subscriber (usually the parents), while grants and returns belong to the beneficiary (the child).
When the beneficiary is enrolled in a qualifying post-secondary institution for full- or part-time studies, the subscriber may apply for a withdrawal.
There are two types of withdrawals to finance education:
Withdrawals for post-secondary education (PSE) are not taxable, since the subscriber did not receive any tax deductions when contributing to the RESP. There is no withdrawal limit for PSE.
Withdrawals from an EAP are taxable in the child’s name. However, with the tuition tax credit and a student’s generally low income, he or she will pay little to no tax. In 2023, EAP withdrawals are limited to $8,000 for a full-time student or $4,000 for a part-time student during the first 13 weeks of study. The beneficiary can then request a full withdrawal from the RESP in the form of an EAP.
As we’ve seen in this guide, the most advantageous savings platform in Canada for saving for your child’s post-secondary education is the Registered Education Savings Plan (RESP). This allows you to save up to $50,000 per child, not to mention generous government subsidies and tax-sheltered returns.
What’s more, this education savings account is an excellent opportunity to give your child a good start in life, considering the high cost of tuition and living expenses. Tax-sheltered growth, subsidies and flexibility are among the other major advantages of this savings plan.
For more information on the Registered Education Savings Plan (RESP), visit the websites of both levels of government:
Here are answers to the most frequently asked questions about Registered Education Savings Plans (RESPs).
The acronym RESP stands for “Registered Education Savings Plan”. The Registered Education Savings Plan (RESP) is an account that lets you save up to $50,000 for your child’s post-secondary education. The return generated (capital gains, interest or dividends) is not taxable, as long as it remains in the RESP. RESP contributions are also eligible for government grants, such as the CESG (Canada) and the QESI (Quebec). Additional subsidies are also available for low-income families, under certain conditions.
The RESP has no annual contribution limit. However, to take full advantage of the government grants, you must contribute $2,500 per year to the RESP. In addition, one catch-up year is allowed per calendar year, for a total of $5,000. Finally, please note that there is a lifetime cumulative limit of $50,000 for any one beneficiary.
There are three types of education savings accounts to help you finance your child’s post-secondary education: Individual RESPs, Family RESPs, and Group RESPs. The type of RESP you choose depends on your family situation (e.g., parent/subscriber, number of children, etc.) and your financial objectives (e.g., advisor management or independent investment).
There are many advantages for parents to open an RESP account to save for their children’s post-secondary education. First and foremost, an RESP gives your child a good start in life, considering the high cost of post-secondary education. Secondly, the RESP allows you to grow your investments tax-free (as long as the funds remain in the RESP). RESP contributions are then eligible for generous grants from both levels of government, such as the Canada Education Savings Grant (CESG) and the Quebec Education Savings Incentive (QESI). Finally, RESPs offer a great deal of flexibility in terms of withdrawals, transfers between beneficiaries and investment choices.
The money in the RESP is made up of 3 elements: contributions, grants and returns (interest, capital gains, dividends, etc.). Contributions belong to the subscriber (usually the parents), while grants and returns belong to the beneficiary (the child). Subscribers can withdraw their contributions tax-free. Beneficiaries can apply for Education Assistance Payments (EAPs) if they are accepted and attending an eligible post-secondary institution. However, EAPs, made up of subsidies and returns, are taxable in the child’s name. That said, since a student’s income is relatively low (below the basic personal amount), the tax burden on RESP withdrawals will be low or nil.
The Canada Learning Bond (CLB) entitles an eligible beneficiary to $500 in the first year and an additional $100 per year until age 15. The subsidy can therefore reach a lifetime maximum of $2,000. Eligibility for the CLB is based on the adjusted family income of the child’s primary guardian and the number of children in the household. For families with one to three children, the income level must be $50,197 or less to qualify for the CLB. This threshold is $56,636 or less for families with four children, and $63,101 or less for families with five children.
The Registered Education Savings Plan (RESP) has a lifetime limit of $50,000 per beneficiary. To take full advantage of government grants, including CESG (Canada) and QESI (Quebec), you must contribute $2,500 per year to the RESP. If you haven’t contributed to an RESP for one or more years, you can catch up. However, catch-up contributions are limited to one year per calendar year.
The RESP is an education savings account with several tax advantages, including tax-sheltered growth. In fact, returns (capital gains, interest or dividends) are not taxable as long as the funds remain in the RESP. Contributions belong to the subscriber (usually the parents), while grants and returns belong to the beneficiary (the child). Subscribers can withdraw their RESP contributions tax-free. Beneficiaries can apply for Education Assistance Payments (EAPs) if they are accepted and attending an eligible post-secondary institution. These EAPs are taxable in the child’s name. However, a student’s income is generally low enough that he or she will pay little to no tax. For example, if the student’s income is below the basic personal amount ($15,000 in Canada and $17,183 in Quebec in 2023), he or she will not pay income tax on RESP withdrawals.
To open a Registered Education Savings Plan (RESP) in Quebec, you must choose an authorized RESP promoter, such as a financial institution, chartered bank, credit union, trust company or insurance company. If you want to manage your child’s RESP investments yourself, you can open a brokerage account with an online broker who offers RESPs. Not all financial institutions offer RESPs or can apply for government grants (CLB, CESG and QESI). Make sure your financial institution is on the list of authorized promoters on the Government of Canada and Revenu Québec websites.
Savings are here:
