Saving for Your Child’s Education Just Got Easier with an RESP

Saving for college or university can feel overwhelming, but a Registered Education Savings Plan (RESP) makes it easier. This savings tool lets you grow your money tax-free and receive government grants to fund your child’s post-secondary education.

What is an RESP?

An RESP is a savings plan in Canada that helps parents and families prepare for the rising cost of higher education. Here’s how it works:

• You or anyone else (like a grandparent or family friend) can contribute to the RESP.
• Your contributions grow tax-free while they stay in the account.
• The Canadian government boosts your savings through the Canada Education Savings Grant (CESG), which matches 20% of your yearly contributions, up to $500 per year. Over time, the government can contribute a lifetime maximum of $7,200 per child.

How Does an RESP Work?

1. Open an RESP Account
   Visit a bank, credit union, or financial institution to open an RESP. You’ll need to provide Social Insurance Numbers (SIN) for yourself and your child.

2. Contribute to the Plan
   You can contribute up to $50,000 per child over their lifetime. Although you won’t receive a tax deduction for these contributions, the money grows tax-free until your child withdraws it for school.

3. Receive Government Contributions
   The Canadian government matches 20% of your annual contributions, up to $500 per year, through the CESG. If your family qualifies, the Canada Learning Bond (CLB) can add even more to your RESP without requiring you to contribute first.

4. Use the Funds for Education
   When your child enrolls in college, university, or trade school, they can use the RESP to cover tuition, books, or living expenses. Students withdraw funds as Educational Assistance Payments (EAPs), which are taxed as income. However, since most students earn little to no income, they typically pay little or no tax on withdrawals.

What are the Benefits of an RESP?

• Grow Your Savings Tax-Free: The money you invest in an RESP grows without being taxed.
• Get Free Government Money: The CESG adds a 20% return on the first $2,500 you save each year for your child.
• Contribute Flexibly: You can contribute as much or as little as you want, up to the lifetime limit of $50,000.

What are the Rules and Limitations?

While an RESP in Canada offers excellent benefits, you should understand its rules:

1. Lifetime Contribution Limit: The total contributions for one child can’t exceed $50,000, even if multiple accounts exist.
2. Unused Funds: If your child doesn’t attend post-secondary education, the government will take back the CESG funds. You’ll also pay taxes and a 20% penalty on any investment income you withdraw for non-education purposes.
3. Timeframe for Use: You must close the RESP account within 36 years of opening it.

Common Questions About RESPs

1. Can I open an RESP if I’m not a Canadian citizen?
Yes, as long as you and your child have Social Insurance Numbers (SIN).

2. What is the maximum government grant?
The CESG provides up to $7,200 per child. Families in provinces like Quebec or British Columbia may qualify for additional grants.

3. Can multiple people open RESPs for the same child?
Yes! Parents, relatives, or even friends can open RESP accounts. However, the total contributions to all accounts for one child cannot exceed $50,000.

Why Use an RESP for Education Savings?

As education costs continue to rise, an RESP is an excellent way to plan for your child’s future. This plan helps you save more efficiently by letting your money grow tax-free and providing government grants. With the RESP, you can make post-secondary education more affordable and less stressful for your family.

Start saving today! Visit your local bank or financial institution to open an RESP and begin building your child’s future.

Click here to read about other government-registered accounts.