What is an RESP?

An RESP, or Registered Education Savings plan, is a government-approved savings account specifically designed to help save for a child’s post-secondary education. 

These accounts are typically opened by parents, in anticipation of their children’s future education expenses, particularly tuition fees. The federal government and some provincial governments offer grants to enhance RESP contributions. With these grants, you could potentially set aside even more funds for when your kids are ready to go to post-secondary education. 

RESPs can be opened through most financial institutions and may hold a wide range of investments, such as stocks, bonds, and GICs. Most RESPs may remain open for a maximum of 35 years.

How do RESPs work?

There are three parties involved in an RESP:

• The subscriber, who opens the RESP and makes contributions over time;
• The beneficiary, who receives the money earned in the RESP and uses it to attend a post-secondary program; and
• The promoter, who manages the RESP and pays the money to the beneficiary when he or she goes to school.

The most common case is the parent or guardian (subscriber) opens an RESP with a bank or other financial institution (promoter), to pay for their child (beneficiary) to go to university. That said, anyone can open and contribute to an RESP for any person regardless of their relationship. The only requirement is the beneficiary must be a Canadian citizen with a social insurance number.

 

Benefits of an RESP

When it comes to saving for your child’s education, the Registered Education Savings Plan (RESP) is a popular choice among Canadian families. RESPs offer various benefits and it is essential to understand them to make an informed decision about your educational savings strategy. 

1. Government grants: RESPs provide access to government grants such as the Canadian Education Savings Grant (CESG), the Canada Learning Bond (CLB), the British Columbia Training and Education Savings Grant (BCTESG), and the Quebec Education Savings Incentive (QESI). These grants offer additional funds based on your contributions and can accelerate the growth of your savings, helping to ease the financial burden associated with post-secondary educational expenses. Government grants are a significant benefit of an RESP, offering potential grants of over $7,200 per child depending on your province of residence.
2. Tax advantages: Investment earnings within an RESP grow tax-free until the beneficiary, your child, withdraws the funds for their post-secondary education. This tax-sheltered growth allows your contributions to accumulate more rapidly over time, maximizing your savings potential. 
3. Flexibility in fund usage: RESPs offer flexibility in allocating funds, to cover various education expenses, including tuition fees, books, accommodations, and other eligible costs. This ensures your child’s educational needs are well supported. 

By understanding and considering these benefits, you can make an informed decision on how to effectively use an RESP to save for your child’s education.