RESP: Saving for children’s and grandchildren’s education

Canadian legislation enables Registered Education Savings Plans (RESPs) to support education savings for children and grandchildren through specific provisions outlined in the Canada Education Savings Act and related regulations.

Facts about an RESP

A Registered Education Savings Plan (RESP) is a savings plan registered with the government that can help you save for your child’s post-secondary education.

Money invested in an RESP grows tax-deferred. The government helps contribute to your savings with education grants.

Later in life, as your child enrolls at a qualifying post-secondary institution, you can withdraw the funds for educational purposes. The payments made from these funds are called Educational Assistance Payments (EAPs).

Invested income and government grants received when withdrawn from the RESP are taxable. You do not pay tax on your contributions using your own money. Then these amounts are taxed in the student’s tax return – usually with little or no tax payable as students generally will be in the lowest tax bracket. Here’s how the framework operates:

Eligibility and Structure

• Subscribers: Parents, grandparents, or other relatives can open an RESP and subscribe to it. Family RESPs specifically allow multiple beneficiaries (e.g., grandchildren) related by blood, adoption, or marriage to the subscriber.
• Beneficiaries: Children or grandchildren must be Canadian residents with a Social Insurance Number (SIN).

Contribution Rules

• Lifetime Limits: A maximum of $50,000 can be contributed per beneficiary across all RESPs. 
• Government Grants:
  • Canada Education Savings Grant (CESG): Matches 20% of annual contributions (up to $500/year) for beneficiaries under 18, with a lifetime maximum of $7,200. 
  • Canada Learning Bond (CLB): Provides up to $2,000 for low-income families. 
  • Provincial Grant Programs: Check with your advisor regarding Provincial Grant Programs available to date, such as Quebec’s Education Savings Incentive and BC’s Training and Education Savings Program. 

Tax Benefits

• Contributions grow tax-free, and educational withdrawals are taxed at the beneficiary’s (typically lower) rate.
• Unused grant funds must be repaid if the beneficiary does not pursue post-secondary education.

Family RESP Flexibility

• Multiple Beneficiaries: A single-family RESP can include multiple grandchildren, allowing contributions to be allocated as needed.
• Long-Term Savings: Plans can remain open for up to 35 years, with contributions permitted for 31 years.

Grandparent Considerations

• Grandparents can open an RESP directly or contribute to an existing one managed by parents.
• Transferring RESP management to parents is possible, but over-contributions or missed grants may occur if not coordinated.

Note: Check with your advisor for updates to the RESP program. This legislative framework ensures RESPs are accessible, flexible, and incentivized through government grants, making them a key tool for multi-generational education savings.

More info: Don’t hesitate to contact us for more information about the RESP and the CESG grant as they apply to your province.

Source: Adviceon Library, Canada.ca