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Registered Education Savings Plan (RESP)


Registered Education Savings Plan (RESP)

Investing in a child’s future post-secondary education can be made easier via a Registered Education Savings Plan (RESP), which is supported financially by the government of Canada. Contributions made to an RESP by subscribers result in profits exempt from taxation. These plans for children under 18 get funding from the federal government.

Contributions to an RESP do not qualify for a tax deduction for the investors who make them. Before any money is taken out to pay for a child’s education, there will be no obligation to pay taxes. At that time, payments paid into the RESP are refunded tax-free; nevertheless, gains from the plan are subject to taxation on the part of the donors. Students are required to pay taxes for the government to get the money it distributes. On the other hand, many students are exempt from paying taxes on the money they take from their savings accounts since they have very little or no income.

Educating oneself about Registered Education Savings Plans (RESP)

With the help of a Registered Education Savings Plan (RESP), parents in Canada can start putting money away for their children’s education from the moment they are born, and the government will contribute to their efforts. It is not necessary for parents or guardians to make an appointment before opening an account with a bank, credit union, or another type of financial institution. Everyone is welcome to make a contribution, whether it be a parent, a neighbor, or a cherished aunt or uncle.

The money that the government of Canada distributes is subject to taxation; however, because so many students have very little or no income, they can take the money tax-free.

After that, the government will contribute an amount equal to or greater than the amount the kid has contributed to their RESP. The Canadian Education and Savings Grant is the name given to the additional money that the government deposits. The amount given out is scaled according to the household’s total annual income. Only the first $2,500 contributed each year counts toward qualifying for matching benefits. The total amount of the gift cannot exceed $7,200 under any circumstances.

After enrolling in college, the student will receive funds from the educational support program (EAPs). These EAPs are included in the child’s total income total (beneficiary). Suppose the beneficiary does not receive payments because the contributor chooses not to make payments or because the beneficiary does not attend a post-secondary institution. In that case, the contributor will receive the amount contributed to the RESP back tax-free if the beneficiary does not accept payments.


RESP Key features

  • A Registered Education Savings Plan (RESP) is a type of college plan supported financially by Canada’s government.
  • Contributions made to an RESP by subscribers allow the fund to grow earnings that are exempt from taxes and can be used to pay for post-secondary education.
  • In addition to the payments made by the parents, the government also makes a payment into these plans on behalf of children who have not yet reached the age of eighteen.
  • The Canadian government sets the lifetime contribution limit for beneficiaries of RESPs at a maximum of $50,000 from all RESPs combined.
  • Suppose a child does not use the grant money to enroll in an accredited post-secondary education training program within 36 years of the account being opened. In that case, the government can ask for the money back.
  • When money is taken out of a REAP but not put toward a student’s college or vocational school tuition, the individual is subject to financial penalties and income tax.

Registered Education Savings Plans: Advantages and Drawbacks

The plans typically offer strong investment incentives and are simple to access. Parents have a dual incentive to save for their child’s education because they won’t initially pay taxes on the money: they avoid paying taxes and receive additional funding for the child’s education from the government in the process.

There are some restrictions. The government may ask for the grant money back if a child doesn’t enroll in an authorized post-secondary education training program, like a college or trade school, within 36 years of opening the account. Any investment earnings taken from the RESP and not used for educational expenses are subject to income tax and a 20% penalty.


Who can open an RESP?

Anyone can start an RESP for a child, including parents, grandparents, relatives, and friends.

Am I allowed to start my RESP?

Yes. You can designate yourself or another adult as the beneficiary of your plan and contribute to an RESP for a maximum of 32 years (the year the plan was opened plus 31 years). Adults cannot receive the CESG.

When should I open an RESP?

Although it’s never too early, the beneficiary must be a Canadian citizen and possess a Social Insurance Number.

How do I choose between opening an individual or family RESP?

If investing in more than one kid, you may pick a family RESP. If one child doesn’t attend college, you can choose an alternate beneficiary or divide the plan’s assets among the others. Beneficiaries don’t have to share equally.

If the children’s ages differ greatly, open separate plans for each. Different plans allow you to contribute to a younger child’s RESP for longer (the plan’s opening year plus 31 years).

Are there restrictions on RESP contributions?

Yes. The lifetime contribution cap for all RESPs is $50,000 per recipient. The CESG adds a maximum of 20% per beneficiary every year, up to a maximum of $500, even though RESPs have no annual restrictions. In other words, the federal government will give you $500 if you contribute $2,500 in a year. If you have any CESG awards from the past that you did not use, you may utilize one year’s worth of unused space each year to give an extra $2,500 and earn the corresponding $500 grant.

Can one child receive benefits from multiple RESPs?

Yes. The beneficiary of more than one RESP can be a child. All RESPs, however, have lifetime contribution caps for each child. By checking to see if other family members are also contributing to a plan for the child, you can ensure that you don’t exceed the lifetime contribution cap.

How much time can I invest in an RESP?

For a maximum of 32 years, you may contribute to an RESP. An RESP can last for a maximum of 35 years. The plan must then be closed.

You can see more details about RESP here.

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