Registered Education Savings Plans (RESPs): The facts
Everything you need to know about RESPs
The price of a good education continues to grow, so investing for post-secondary education makes sense. And there’s an investment option that can help: a registered education savings plan (RESP). But understanding the details of an RESP can be a little daunting.
We’ve created a reference guide to help you with the technical aspects of RESPs, with tips on what to look for and how to maximize it.
What’s an RESP?
A registered education savings plan (RESP) is a tax-assisted plan that can help save money for post-secondary education. Contributions to an RESP aren’t tax deductible or taxable when withdrawn, but money in the plan grows tax-deferred until you withdraw it.
Types of registered education savings plans
- Individual plan – for only one beneficiary; no restrictions on who can be the beneficiary.
- Family plan – for one or more beneficiaries; each beneficiary must be related to the person who set up the RESP by blood or adoption
- Group plan – also referred to as education funds or scholarship funds; a set of individual plans administered on an age-group basis.
Payments from a registered education savings plan
When the beneficiary is enrolled in a qualifying post‑secondary education program, payments can be made to the beneficiary of an RESP in the form of:
- educational assistance payments (EAPs) – includes investment growth and government incentives
- post‑secondary education (PSE) withdrawals – tax-free payment of contributions
Government help for RESPs
One of the advantages of opening an RESP is that the Government of Canada (and some provincial governments as well) offers grants and incentives to help build your RESP savings.
Canada Education Savings Grant (CESG)
The Government of Canada will add 20% on every dollar of the first $2,500 you save in a child’s RESP each year, to a maximum lifetime limit of $7,200 per child. Depending on net family income, you could also receive an extra 10% or 20% on every dollar of the first $500 you save in the child’s RESP each year.
Canada Learning Bond (CLB)
The CLB is a federal government incentive of up to $2,000 to help modest‑income families set up RESPs and save for children born after 2003. The initial deposit is $500, plus $25 to cover the cost of opening an RESP. Afterward, the deposit is $100 per year until the child reaches age 15.
Make an informed decision about RESPs
You may have a lot of questions when it comes to saving for your child’s education and the benefits of RESPs. Our full reference guide includes detailed information on:
- how an RESP works, and why you may want one
- different types of RESPs—individual, family, and group plans
- RESP contribution limits and tax implications
- government grants and incentives
- payment and withdrawals from an RESP, including educational assistance payments (EAPs)
… and so much more!
Knowing the benefits and rules of a registered education savings plan, from the first contribution to the final withdrawal, can help you pay for post-secondary education tax efficiently. Work with your advisor to determine your goals, and to help you set up an RESP and budget to achieve those goals.
Advisors, share this guide with your clients to help answer any questions and assist with RESP savings.