Understanding RESPs (Registered Education Savings Plan)

by Geoff Sgarbossa, CD, CFP, RIS, Financial Planner

Post-secondary education is getting more expensive, and the workforce is much more competitive. Additionally, the ever-increasing cost of living is stretching existing budgets paper thin and forcing post-secondary education further out of reach for many families. To incentivize early education planning and savings, the Registered Education Savings Plan (RESP) is designed specifically to assist with saving for post-secondary education.

Who is involved in a RESP contract:

Subscriber- Typically a parent or guardian who opens the RESP. The subscriber has decision making authority to make contributions and withdrawals, and designate beneficiaries of the plan.

Promoter- Is the company that holds and manages the RESP.

Beneficiary- Is a named individual(s)- typically the child or children who benefit from the RESP. 

Available Plan Types

There are three main types of RESPs:

1. Individual Plan- There is a single beneficiary with no restrictions as to who can be the beneficiary under the plan, provided other qualifying criteria is met. Beneficiary and Subscriber do not need to be related.

2. Family Plan- With more than one beneficiary, where each beneficiary is related by blood or adoption to, or is a dependant of, each living subscriber under the plan.

3. Group Plan (also known as Pooled)- Savings are combined with those of other people saving for their children born in the same year. How much benefit each child gets depends on how much money is in the group account, and on the number of students of the same age who are in school that year.

Investment Options

It is important to remember that a RESP is not an investment itself, nor does it attract a rate of return. The RESP is an account that houses different types of investments. The Plan type determines when withdrawals are allowed, how to tax any withdrawals, and who is responsible for that tax liability. The investment products that are held inside the account provide the rate of return. It is a registered and tax-sheltered account in which individuals can hold a variety of investments, including:

• Cash Deposits

• Stocks

• Bonds

• Mutual Funds, Segregated Funds and Exchange-Traded Funds (EFTs)

• Guaranteed Investment Certificates (GICs)

Contributions and Limits

There is no limit to Personal Contributions in any one year, but there is a lifetime personal contribution limit of $50,000 per beneficiary. Federal and provincial government contributions are not included in the $50,000 personal Contribution limit.

Canadian Education Savings Grants (CESG) provides an incentive to save for a child’s post-secondary education. The CESG is a matching grant, meaning you first need to contribute, and the government will match your contributions up to prescribed rates. There is a lifetime limit of $7,200.

• Basic CESG matches with 20% on the first $2,500 in annual contributions regardless of family income.

• Additional CESG matches with up to an additional 20% on the first $500 in annual contributions. The additional CESG amount decreases as family income increases and completely disappears at $111,733 (2025).

Canada Learning Bond (CLB) is available for eligible  children from low-income families and provides an initial payment of $500 for the first year the child is eligible, plus up to an additional $100 per year, to a maximum of $2,000. Personal contributions are not required. Eligibility is case-specific based on income and number of children.

Some Provinces provide additional support in the form of provincial grants or tax credits.

Withdrawals and Taxes

Contributions into a RESP plan are not tax-deductible from the subscriber’s income, but investment income is permitted to compound on a tax-sheltered basis while retained within the plan. Any interest paid on funds borrowed to make a RESP contribution is not tax-deductible.

Return of contributions do not trigger a tax liability because they were made using already taxed money. Associated matching grants must be repaid to the government unless done in conjunction with an Educational Assistance Payment for the beneficiary.

Educational Assistance Payment (EAP) is a distribution of money, comprised of government contributions and investment growth. Beneficiary must be enrolled in a qualifying educational institution to qualify for an EAP. Taxed in the hands of the beneficiary at their Marginal  Tax Rate (MTR). Supporting documentation is required by the promoter to process the EAP.

Accumulated Income Payment (AIP) is a distribution of investment growth, typically paid to the subscriber, when the beneficiary is not enrolled in a qualifying educational institution. Taxed in the hands of the subscriber at their MTR, plus an additional 20% in

most cases (12% for subscribers living in Quebec).

Payments to be designated educational institution in Canada can be made at any time if the eligibility criteria are not met for an EAP or AIP.

Excess contributions occur at the end of the month when the total of all contributions made by all subscribers to all RESPs for a beneficiary is more than the lifetime limit for that beneficiary. Each subscriber for that beneficiary is liable to pay a 1% per-month on his or her share of the excess contribution that is not withdrawn by the end of the month. An excess contribution exists until it is withdrawn.

Limitations and Considerations

The RESP is a registered account allowing for tax advantages and government monetary support. There is no such thing as “free government money” though, so there are some rules that must be followed to be eligible to use the RESP and receive government funding. The following are some rules to consider when designing your education plan.

• While the education savings grant and bond are focussed on minors, the RESP is not specifically meant for children and can be a beneficial savings vehicle for post-secondary education at any age. You can make contributions into a Registered Education Savings Plan (RESP) until 31 years after it was first opened. You would then have until the end of the 35th year to use funds before the RESPO expires (or up to 40 years for a specified plan (DTC-Disability Tax Credit)

• There s no limit on the number of RESPs for a single beneficiary, but there is no change to maximum contribution limits, so be sure to avoid over-contributions if there are multiple active accounts. Our Wealth Advisory highly recommends not having more than one RESP per beneficiary.

• The education savings plan is designed to encourage parents to start saving early for their children’s post secondary education. Children who are 16 or 17 years old may be eligible to get the CESG, but first must meet at least one of the following conditions before the end of the calendar year they turn 15:

         - a total of at least $2,000 is contributed to (and not withdrawn from) the RESP

         - a minimum annual contribution of $100 is made to (and not withdrawn from) the RESP in any four previous years.

• There are some limits to the EAP to consider:

       - the amount of EAPs you are allowed to take in the first 13 weeks is currently limited to a total of $8,000 for eligible full-time studies ($4,000 for eligible part-time studies)

       - A beneficiary is entitled to receive EAPs for up to six months after ceasing enrolment, provided that the payments would have qualified as EAPs if the payments had been made immediately before the student’s enrolment ceased.

Transfer and Rollovers

For many reasons, a beneficiary may decide against  post-secondary education. If this is the case, depending on the situation, there are several options available beyond simply closing the account. All options come with their own set of eligibility criteria to discuss. If it looks like your child will not be attending post secondary, some of the eligibility criteria are dependant on age, so it is important to discuss this with your advisor sooner than later. Some of the more common options are:

• Transfer to another RESP where the beneficiary is a sibling by blood or adoption.

• Rollover to a RRSP or RDSP. Rollovers are generally treated as an AIP and government money will need to be returned, but it can be done on  tax deferred basis, including elimination of the 20% additional tax typically imposed on AIPs.

Disability Planning

Folks living with disabilities who rely on federal and/or provincial income support have unique planning constraints that can make it difficult to save without jeopardizing quality of life and income supports. In many jurisdictions across Canada, including the Ontario Disability Support Program (ODSP), RESPs held for persons related to them by blood, marriage, or adoption are treated as exempt from income and asset inclusion for purposes of calculating their monthly income amounts.

Conclusion

The Registered Education Savings Plan is a powerful tool for Canadians seeking to save and invest for their post-secondary education goals. However, while the government contributions can be quite attractive, this account may not be for everyone. Other planning tools used by our Team all remain important components of a complete financial plan. Contact our Wealth Advisory to learn more about implementing and RESP strategy for your family.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as financial, legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional financial, tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family. please contact our Wealth Advisory Team.

Posted date September 11, 2025