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RESP – Registered Education Savings Plan for Canadian Children

With the rising tuition costs of post-secondary education, it’s more important than ever to start saving for your child’s education as early as possible. One of the best ways to do this is through a Registered Education Savings Plan (RESP). But what is an RESP?

This blog post will explain an RESP, how it works, and the benefits of opening one. Let’s get started.

What Is RESP?

RESP is tax-free savings account for a child’s future post-secondary education, partially funded by the Canadian government. The account grows tax-free, and the federal government contributes through the Canada Education Savings Grant (CESG).

Three entities are involved in an RESP:

  • Subscriber: The person who opens and contributes to the account.
  • Beneficiary: The child who receives the contributions for education expenses. Family plans can have multiple beneficiaries.
  • Promoter: An organization that offers RESPs, such as a bank, credit union, or group scholarship provider.

Types Of RESPs

  • Individual or Non-Family RESP Plans: With these plans, anyone can start saving for a beneficiary’s education by setting up an individual Registered Education Savings Plan (RESP). The subscriber does not need to be related to the beneficiary. They can make flexible contributions up to the annual limit, and the beneficiary may be eligible for the Canada Education Savings Grant and Canada Learning Bond.
  • Family RESP Plans: These plans involve one or more beneficiaries that must be related to the subscriber by blood or adoption. With these plans, the subscriber can self-direct the payment plan and make payments as they see fit. In addition, the subscriber can designate portions of the RESP for specific beneficiaries. The account’s earnings will be divided among beneficiaries, with one potentially receiving the Canada Education Savings Grant (CESG).
  • Group RESP Plans: With a group RESP, you pool your contributions with those of other investors to save for a specified number of children who may or may not be related to you. These plans usually have more rules and restrictions than other types of RESPs and fixed payment schedules. If you miss a payment, there may be penalties involved. The earnings from your and other investors’ contributions are pooled together and usually invested in low-risk investments selected by the group scholarship provider. This way, the money can grow over time while still being accessible when your child or children reach college age.

What Are The Benefits Of RESPs?

  • Savings Grow Tax-Free: With a Registered Education Savings Plan (RESP), the money you save for your child’s post-secondary education grows tax-free.
  • Contributions Are Not Tax Deductible: Unlike Registered Retirement Savings Plan (RRSPs), contributions to an RESP are not tax deductible.
  • RESP Government Grants: To help you save for your child’s future education, the government will match 20% of your RESP contributions up to $2,500 per year. That means an extra $500 in your RESP each year. Beneficiaries of an RESP can also receive the Canada Learning Bond and the Canada Education Savings Grant and grant money for higher education.
  • Anyone Can Contribute: Parents, grandparents, relatives and friends can contribute to an RESP. Even strangers can contribute to educational assistance payments if they are prepared to name the child as the beneficiary.

What Are The Limitations?

Despite the many benefits of RESPs, there are some limitations to consider:

  • The biggest limitation is that any child can only receive a maximum lifetime total of $7,200 from the CESG.
  • There is no annual limit on contributions made by the subscriber when setting up multiple plans, but there is a lifetime contribution limit per beneficiary of $50,000. Over-contributing to an RESP will result in monthly taxes, which must be withdrawn to avoid accruing interest. A tax-free savings account has an annual limit of $6,000 for 2022 with no lifetime limit.
  • If the subscriber of an RESP dies intestate (without a will), the RESP’s contributions will go to the deceased subscriber’s estate. This would mean that a court would decide what happens with the money in the RESP, which could put the beneficiaries at risk of not receiving any mutual funds.

Get Started Now

For a family with young children, saving for their future education can be a top priority. A Registered Education Savings Plan (RESP) is one way to save, and it offers several tax advantages. Also, the Canadian government will give you the educational assistance payment to help with your savings.

Having a financial advisor help, you set up and maintain your RESP can ensure that your savings are maximized and that you’re taking advantage of all the benefits available.

We can help you start saving for your children’s education with an RESP. We make it easy to open an account and automate your contributions, so you can focus on what’s important – raising happy, healthy kids.

Talk to our advisor today about how we can help you reach your financial goals.



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