RESP
All About RESPs
Navigating the World of RESPs – A Comprehensive Guide to Education Savings, Grants, and Strategic Planning.
Learn about the vital role the Registered Education Savings Plan (RESP) plays in helping families to prepare for their children’s post-secondary education.
On this page, you’ll learn about the fundamental features and intricacies of RESPs, the various grants that are available, the process of withdrawing funds for education, and the considerations when closing an RESP.
For more information, contact us for a consultation
Table of Contents
What is a RESP?
A Registered Education Savings Plan (RESP) is a registered account that allows you to save money for a beneficiary’s post-secondary education.
There are two types of RESP accounts, individual RESPs, and family RESPs. As their names suggest, the individual RESP is for one beneficiary, and a family RESP is for multiple beneficiaries from the same family.
Important terms
The subscriber is the one who opens the RESP for the beneficiary and typically the one who contributes to the account. Spouses and common-law partners may be joint subscribers on an RESP.
The beneficiary is the one who will ultimately benefit from the RESP’s contributions and grants, assuming they attend a qualifying post-secondary institution. Beneficiaries are typically the children or grandchildren of the subscriber, but this is not a requirement.
Contributions
RESP contributions are not tax deductible as they are in an RRSP, and the earnings on these investments are not tax free, as they are in a TFSA. You are also not allowed to deduct any interest on money you borrowed to invest in a RESP. The incentive of a RESP comes from the grants offered by the federal and provincial governments. There is typically an added advantage as the tax on the investment earnings is transferred to beneficiaries who will typically pay little to no tax at the time of withdrawal.
RESP contributions do not have an annual limit (if opened after 2008), however there is a lifetime limit of $50,000 per beneficiary. Any grants are not included in this limit. You may contribute to a RESP as long as one or more beneficiaries are under the age of 31 at the time of contribution. However, the CESG matchings stop at the end of the calendar year in which the beneficiary turns 17.
Grants
The Canada Education Savings Grant (CESG)
The Canada education savings grant (CESG) is provided by Employment and Social Development Canada (ESDC). Regardless of income levels, the ESDC pays a minimum CESG in the amount of 20% of annual personal contributions, up to a maximum of $500 per beneficiary (you may carry over unused CESG, up to an annual maximum of $1,000). The CESG also has a lifetime limit of $7,200.
This means that in order to maximize the CESG, you would need to contribute $2,500 per year, and $36,000 total. If you were to contribute $200 each month CESG would max out after 15 years. This is the equivalent of a risk-free return on investment of 20%, with the only requirement that the beneficiary attends a qualifying post-secondary education.
The CESG also has an income adjustment feature as well. In 2023 the adjustment for families with a net income below $53,359 (the first tax bracket) was an additional 20% applied to the first $500 of contributions, increasing the yearly maximum to $600. For families with a net income between $53,359 and $106,717 (the second tax bracket) the adjustment was an extra 10% on the first $500 for an annual limit of $550. The lifetime limit does not change however and is still $7,200 regardless of additional grant money.
Contributions qualify for the grant up until the end of the calendar year in which the beneficiary turns 17 years of age. However, to receive the grant when the beneficiary is 16 or 17 years old, one of the following conditions must be met:
- A minimum of $2,000 was contributed to (and not withdrawn from) the RESP before the end of the year in which beneficiary turned 15.
or
- A minimum of $1,000 was contributed (and not withdrawn from) the RESP in at least four of the years before the end of the calendar year in which they turned 15.
The Canada Learning Bond (CLB)
The Canada Learning Bond (CLB) is an additional incentive provided by ESDC for beneficiaries from low-income families born in 2004 and later. The CLB is an initial payment of $500 in the first year the child is eligible, and $100 for each additional year of eligibility up to age 15. The lifetime maximum for CLB is $2,000. Unlike the CESG there is no contribution required to receive the CLB, and on top of the initial $500 grant, ESDC will pay an additional $25 to cover the cost of opening the RESP.
The family income thresholds to determine CLB eligibility are adjusted for the number of children in that family and change from year to year. The following table is for July 1, 2023, to June 30th, 2024.
| Number of Children | Income Bracket Range | Adjusted Income Levels |
|---|---|---|
| 1 to 3 | Less than or equal to | $53,359 |
| 4 | Less than | $60,205 |
| 5 | Less than | $67,079 |
| 6 | Less than | $73,953 |
| 7 | Less than | $80,827 |
| 8 | Less than | $87,701 |
| 9 | Less than | $94,574 |
| 10 | Less than | $101,448 |
| 11 | Less than | $108,322 |
| 12 | Less than | $115,196 |
| 13 | Less than | $122,070 |
| 14 | Less than | $128,944 |
| 15 | Less than | $135,818 |
| 16 | Less than | $142,692 |
BC Education Training and Education Savings Grant (BCTESG)
The BCTESG is a one-time grant of $1,200 offered by the BC government for beneficiaries aged 6 to 9 years old. The parent or guardian and child must both be residents of British Columbia at the time of application and have a valid SIN number.
Withdrawing Funds for Education
When a beneficiary decides to attend a post-secondary institution, the withdrawal process is quite simple. The beneficiary will need to provide proof of enrollment, and most institution will have an auto-generated PDF available through their student portal. If they are not in the student portal, they are typically readily available when you contact the administration.
RESP withdrawals for the purpose of post-secondary education fall into two categories, Education Assistance Payments (EAP) and Post-secondary Education (PSE) withdrawals. The table below breaks down the difference between the two.
| Education Assistance Payments (EAP) | Post-Secondary Education Withdrawals (PSE) | |
|---|---|---|
| Description | Any grants and investment earnings in the RESP. | Contributions made by the subscriber. |
| Taxes |
Taxable to the beneficiary. Most students have enough tax credits from their studies and low income, so this tax is minimal, if any. |
Not taxable. No tax deduction for RESP contributions, therefore tax has already been paid. |
| Maximum Withdrawal |
Full time: Part time: |
No limit. |
EAP is the first choice for withdrawing funds, primarily because any grants in the account must be directed towards education, otherwise they will be returned to the government. The beneficiary’s income is likely also at its lowest point, meaning this would be the best time to pay the taxes associated with EAP, if there are any left after education tax credits.
Lastly, any remaining PSE in the account can be withdrawn tax free.
Closing an RESP
If the beneficiaries of the RESP decide not to attend a qualifying institution or there are funds remaining in the RESP, the funds are split into three categories for withdrawal purposes.
- Contributions
- Government Grants
- The earnings on the investments (called an accumulate income payment or AIP).
1. Contributions
The contributions can be withdrawn at any time and are tax free, there is no tax deduction for RESP contributions and therefore the tax has already been paid on these funds.
2. Government Grants
Any grants will be returned to the government. In a family RESP the Canada Education Savings Grant (CESG) can be transferred to another beneficiary if they have not already reached their CESG room. The CESG limit per beneficiary is $7,500.
3. The earnings on the investments (called an accumulate income payment or AIP)
The money earned in the account can be withdrawn as an accumulated income payment (AIP). This portion of the funds is harder to withdraw as there are more restraints placed on AIP by the CRA. To make an AIP withdrawal the RESP must meet these conditions:
- The RESP was opened at least 10 years ago.
- All beneficiaries are 21 years old.
- No beneficiaries are currently in school.
AIP is also taxed at your current income level, plus 20%.
This tax can be avoided by transferring the money directly into your RRSP, up to a $50,000 limit per subscriber, assuming you have the contribution room. This is why it is strongly recommended to withdraw the EAP (as the EAP makes up part of the AIP) before drawing any PSE and thus minimizing any taxes in the event of remaining funds in the RESP.
Appendix - Helpful links for RESP information
To learn more about RESPs, please contact us.
