Understanding RESPs: Benefits, Contribution Limits, and FAQs

With the rising cost of post-secondary education, it’s more important than ever to consider the benefits of a Registered Education Savings Plan (RESP) so you can start contributing today towards your child’s future education.

The Basics

Tax-sheltered savings

While contributions to an RESP account are not tax deductible, they grow tax-sheltered while in the account and the income earned is not taxable until paid out to the beneficiary.

Contribution limit

Since 2007, there has been no annual contribution limit. There is, however, a lifetime maximum of $50,000 in contributions to the beneficiary and the additional Canada Education Savings Grant is only eligible on the first $2,500 contributed each year.

Canada Education Savings Grant

As an added incentive, every RESP beneficiary is eligible to receive a grant of up to 20% of the first $2,500 contributed annually ($500) until the beneficiary turns 17. If less than $2,500 is contributed to any given year, the unused Canada Education Savings Grant (CESG) room can be carried forward, up to a maximum of $1,000 granted annually. There is a lifetime maximum for CESG contributions of $7,200 per beneficiary.

FAQ

Five questions and answers about RESPs

How many RESPs can I have?

There is no limit to the number of plans from different institutions your child can have, but there is still a lifetime contribution limit of $50,000 per beneficiary for all the plans combined.

How does my child use RESP funds?

As many contributions as you like can be withdrawn to pay for your child’s qualifying post-secondary education program. Withdrawals from Canada Education Savings Grants (and other grants) received, or interest earned are called Education Assistance Payments and can be used to pay for tuition, books, or transportation.

Can I transfer an RESP to another child?

Yes. If, for example, one child decides not to attend university, you may change the beneficiary named on the RESP. Or you can simply add the child to an existing RESP family plan.

What happens to unused RESP funds?

RESPs mature after 35 years, and any unused contributions are returned tax-free to the contributor. Any income from the contributions can be transferred (up to $50,000) into the contributor’s (or spouse’s) RRSP or taxed at the marginal rate plus a 20% surtax. Any unused Canada Education Savings Grant funds must be repaid to the government.

Can I withdraw RESP funds?

Contributions can be withdrawn tax-free at any time by the contributor, but restrictions may apply on future Canada Education Savings Grant payments.