RESPs

Do you want to help pay for post-secondary education of your children, grandchildren or a niece or nephew? You can save ahead and take full advantage of compound savings through a registered education savings plan (RESP). An RESP is a tax-sheltered trust fund that is used for the educational benefit of the named beneficiaries at the post-secondary level. The RESP works as follows:

  • More than one beneficiary may be named and the beneficiaries may be substituted (for example, if one child beneficiary elects not to attend an appropriate educational institution).
  • The contributor is usually a parent or grandparent, although it is possible to contribute to one’s own RESP (by naming oneself as the beneficiary).
  • The lifetime limit is $50,000 per beneficiary.
  • The contributions are not tax deductible.
  • The earnings are tax-sheltered until withdrawn, at which time the earnings are taxed at the beneficiary’s tax rate (the assumption being that a student’s tax bracket is likely to be much lower than that of the subscriber’s).

The Canadian Education Savings Grant (CESG) is intended to augment the RESP program. It is money the Government of Canada contributes to your child's RESP to help their education savings grow. The CESG works as follows:

  • CESG will match 20% of the annual RESP contribution for children up to and including the year they turn 17, up to a maximum annual grant of $500 (20% of an annual contribution of $2,500).
  • Additional amounts are available for low and middle income families and from certain provincial governments.

Catch-up contributions may be made to secure additional grant money that is available from past years when the child was eligible but an RESP contribution was not made (or the full grant for that year was not received).

  • If a catch-up payment applies to any year prior to 2007, a maximum grant of $400 is available with a $2,000 contribution.
  • For 2007 onwards, the amount increases to $2,500 to receive a $500 grant.
  • Only the current year’s and one additional year’s grant are available annually.

For example: A child is age 15 in 2013. A new RESP account is opened in 2013 and maximally funded for both the current year and a catch-up year until the child turns 17.

Child’s Age

Year

Current Year’s Contribution

Current Year’s CESG

Past Year’s Contribution

Past Year’s CESG

15

2016

$2,500.00

$500.00

(2015) $2,500.00

$500.00

16

2017

$2,500.00

$500.00

(2014) $2,500.00

$500.00

17

2018

$2,500.00

$500.00

(2013) $2,500.00

$500.00

 

 

$7,500.00

$1,500.00

$7,500.00

$1,500.00

Total “current” and “past” year contributions over the 3-year period = $7,500 + $7,500 = $15,000

Total “current” and “past” year CESGs over the 3-year period = $1,500 + $1,500 = $3,000

Total of contributions and CESG = $18,000 plus investment returns

Check to see if your province or territory has an incentive or grant program that pays money into a child’s RESP (for example, the Québec Education Savings Incentive [QESI]).

Did You Know?

  • If the beneficiary elects not to attend a recognized post-secondary institution and no other beneficiary can be substituted, the grant must be returned to the government and the original contributions returned to the contributor.
  • Only the earnings are taxed with the balance paid to the contributor.
  • Alternatively, the earnings may be rolled into the contributor’s RRSP if they have room, up to $50,000.

Education Savings Calculator

Saving for your children's education requires a long-term plan. And, like saving for retirement, the earlier you start your plan the better. Use this calculator to help develop or fine-tune your education savings plan. Click the "View Report" button for a detailed look at the results.


Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.