Saving for your child’s education with an RESP

From: Financial Consumer Agency of Canada

What is an RESP

RESP” stands for Registered Education Savings Plan. This is an account registered with the federal government to help you save for a child’s post-secondary education. The person who opens the plan is the subscriber—usually, but not always, the parent. The person who will receive money under the plan is the beneficiary—usually, but not always, your child.

You can open an RESP as soon as the child is born. The money in the plan grows tax-free and the government offers special savings incentives. When the child enters a qualified educational program at the post-secondary level, he or she can start drawing on the accumulated savings. Only the child will pay taxes on the money he or she withdraws. Since many students have little or no other income, they usually don’t have to pay much, if any, tax when they withdraw money from their plan.

How does the government help

When you contribute to an RESP, the Government of Canada will contribute as well with a Canada Education Savings Grant. The amount depends on your own contribution and your family circumstances.

The government provides more help for families with modest income. This may include an enhanced Canada Education Savings Grant (CESG) and a Canada Learning Bond (CLB).

  • The CESG is money the government adds to the contributions you make to an RESP for your child. The amount could be as much as $500 per year, depending on how much you contribute. A child could receive up to $7,200 in CESGs for post-secondary education.

Learn more about CESG eligibility.

  • The CLB is money the government deposits into an RESP for a child from a low-income family. The government contributes up to $2,000 for an eligible Child. This includes the following:
    • $500 for the first year of eligibility
    • $100 for each subsequent year of eligibility (up to the benefit year in which the child turns 15)

CLBs can also be claimed for previous years in which the Child was eligible, even if no RESP was opened. Contributions are not required to receive the CLB.

Learn more about CLB eligibility.

Learn more about the Canada Learning Bond for adult beneficiaries

Who offers RESPs and how can you start one

  • You can open an RESP at almost any financial institution—including a bank, trust company or credit union—or an investment or scholarship plan dealer
  • Before you open the RESP, you and the beneficiary both need to have a Social Insurance Number
  • If you're considering opening an RESP with a federally regulated financial institution, you have the right to be informed about key details before the plan is set up.

What are the different types of plans

You can choose from three types of plans:

Individual plan

For a single beneficiary, who does not have to be a blood relative of the subscriber (the person who opens the plan).

Family plan

For multiple beneficiaries, all of whom must be connected by blood or adoption to the subscriber. A government grant paid into an RESP may be shared among all the beneficiaries. If one beneficiary decides not to continue studies after high school, the other beneficiaries can still use the money.

Group plan

Your savings are pooled with those of other people. The money your child receives is based on the amount of money in the pool and the total number of students of the same age who are in school that year. Usually you have to sign a contract agreeing to make regular contributions to the plan over a set period. Group plans are offered and administered by scholarship or group plan dealers. They may be more expensive than individual or family plans, depending on your investment choices.

Tips for shopping around for an RESP

  • Decide on the type of plan. Choose an individual, family or group plan—whichever suits you best.
  • Check about fees and restrictions. Some RESP providers charge service fees; others don't. Ask the institution to explain any fees, limits, penalties or promises to make regular payments. Also ask about investment and withdrawal options.
  • Make sure you understand all the terms and conditions. Carefully read the information you're given. If you don’t understand something, ask about it.
  • Shop around to find the plan that best suits your needs.
  • Start early to maximize the benefits.

Questions to ask your RESP provider

Here are some of the questions you should ask before you open an RESP:

  • Does it cost anything to open an RESP
  • Do I have to put in a minimum amount of money to open an RESP
  • Once I have opened an RESP, will I have to pay any fees. If so, what are they for and how much must I pay
  • Do I have to make regular contributions
  • What happens if I miss a contribution. Do I lose my investment
  • How can I invest the money that I put into the plan. What are the pros and cons of each investment choice. Can the value of my investments go down
  • Can I withdraw money if I need it. Are there penalties for early withdrawals
  • Can I transfer the RESP to another beneficiary or another RESP provider. What is the cost to transfer
  • What happens if my child does not continue studies after high school
  • Which educational programs can my savings be used for
  • What happens if I close my RESP early
  • Can I switch plans
  • How long can I keep the plan open

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