Everything You Need to Know About RESPs: How to Maximize Your Child’s Education Savings

Understanding the Basics: What is an RESP?

A Registered Education Savings Plan (RESP) is a government-registered investment account designed to help parents and guardians save for their child’s post-secondary education. Unlike an RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account), which primarily benefits the account holder, an RESP is created for the benefit of a child or other designated beneficiary.

Key Features of an RESP:

Investment Flexibility: RESP funds can be invested in stocks, bonds, mutual funds, GICs, or high-interest savings accounts to grow over time.
Government Grants: Contributions to an RESP qualify for government grants that provide additional funds toward the beneficiary’s education.
Tax-Sheltered Growth: Investment earnings within the RESP grow tax-free until withdrawn for educational purposes.
Flexible Contribution Options: Parents, grandparents or other family members can contribute, though there is a lifetime limit of $50,000 per child.

Who Can Open an RESP?

Parents, guardians, or grandparents
Other relatives or friends

Individual vs. Family RESPs

There are two types of RESP accounts:

Individual RESP – One beneficiary; anyone can contribute.
Family RESP – Multiple beneficiaries (siblings). For families with more than one child, a family RESP is often the better option since it allows unused funds to be shared among beneficiaries.
- You can open up a Family RESP even if there is only one beneficiary/ child at the time. It is fine to keep this type of RESP even if no more beneficiaries are added later.

How to Maximize Government Grants and Contributions

The Canada Education Savings Grant (CESG) is the most valuable incentive within an RESP. The government matches 20% of annual contributions up to a maximum of $1,000 per year per child. The lifetime CESG maximum is $7,200 per child.

How to Maximize CESG Contributions:

Contribute at Least $2,500 per Year

To receive the full $500 CESG match, contribute at least $2,500 annually. ● If you contribute less in a given year, you can "carry forward" unused grant room.

Catch-Up Contributions

If you missed contributing in previous years, you can make a maximum catch-up contribution of $5,000 per year (to receive a $1,000 CESG grant).
This allows you to recover missed government grants.
You can contribute more than $5,000 per year (provided you do not exceed the $50,000 lifetime limit).

Lower-Income Families Get Extra Grants

The CESG offers additional grants to lower and middle-income families based on annual household income:

Households with adjusted income up to $55,867 receive an extra 20% on the first $500 contributed annually, adding $100 in additional grant funds.
Households with adjusted income between $55,867 and $111,733 receive an extra 10% on the first $500 contributed annually, adding $50 in additional grant funds.

Additionally, families with income below $55,867 may also qualify for the Canada Learning Bond (CLB), adding up to $2,000 in grants without requiring personal contributions.

For reference: Your Adjusted Net Income is your family's net income, less any Universal Child Care Benefits and Registered Disability Savings Plan Income received, plus any repayments of these amounts.

Maximize RESP Contribution Timing

Since CESG grants stop at age 17, contributions should be strategically planned before this cutoff. There are certain conditions, though, that allow you to still receive CESG grants after age 15:

To qualify for CESG at ages 16 and 17, a total minimum of $2,000 should be contributed to (and not withdrawn from) the RESP before the end of the calendar year in which the beneficiary turned 15 or;
A minimum annual contribution of $100 should be made to (and not withdrawn from) the RESP in at least four of the years before the end of the calendar year in which the recipient turned 15.

Withdrawing RESP Funds: Tax-Efficient Strategies

When it’s time to withdraw RESP funds, there are two types of withdrawals:

Post-Secondary Education Payments (PSEs)
1. Tax-free withdrawals of your original contributions
2. Can be used for tuition, books, housing, meal plans, and other education expenses.
Educational Assistance Payments (EAPs)
1. These are grants and investment earnings within the RESP.
2. Taxed as student income, which is typically in a low tax bracket.

Strategies to Minimize Taxes:

Withdraw EAPs first – Since CESG and investment gains are taxable, prioritize withdrawing these funds while the student has little to no income.
Withdraw funds strategically – If the student has summer jobs or part-time income, consider spacing out RESP withdrawals to avoid unnecessary tax.

Withdrawing RESP Funds: Rules and Timing

Proof of enrollment

To withdraw funds from your RESP, you will need to show proof of enrollment with your financial institution. This may come in the form of a signed acceptance letter or invoice from the education institution.

When can you start redeeming?

You can start redeeming from an RESP as soon as the child (beneficiary) has graduated high school and is accepted into a qualifying post-secondary school. A qualifying post-secondary school includes colleges, trade schools, vocational and technical schools, and universities. For a complete list, visit the Government of Canada page here.

How Much Can You Withdraw?

Post-Secondary Education Payments (PSE): No limit.
Education Assistance Payments (EAP):
- First 13 weeks: $8,000 limit ($4,000 for part-time students).
- Beyond 13 weeks: No limit.

Keep in mind that while your financial institution may not require receipts, you should be prepared to justify your withdrawals with proof in the event of an audit.

What Happens if the RESP is Not Used?

If the child does not pursue post-secondary education, several options exist:

Change the RESP beneficiary—You may opt to name another beneficiary, like a sibling, to use the funds for education expenses.
Transfer RESP funds to your RRSP
- Under this strategy, you can transfer up to $50,000 of your contributions to your RRSP, provided you have enough RRSP room, are a resident of Canada, the beneficiary is at least 21 years old, and the RESP was opened at least 10 years prior.
- CESG money must be returned to the Government.
Withdraw funds
- Under this strategy, your contributions come out of the RESP tax-free; investment growth on your contributions will be taxed at your regular tax rate plus 20%.
- CESG money must be returned to the Government.
- For this strategy, the RESP must have been open for at least 10 years, and the beneficiary is over age 21.
Keep the RESP open
- The RESP can remain open for up to 36 years in case the beneficiary later enrolls in post-secondary education.

An Overlooked Strategy of the RESP

Maximizing Compound Growth

While you can contribute up to $50,000 per child, only $36,000 of that is eligible for CESG matching, meaning the government will contribute up to $7,200 in grant money if your contributions are timed correctly. This leaves $14,000 in contributions that won’t receive any matching grants. However, by structuring contributions wisely, families can maximize both their grant eligibility and tax-deferred investment growth.

To fully benefit from the CESG, many families choose to contribute $2,500 per year, which allows them to receive the 20% annual CESG match ($500 per year) until they reach the $7,200 grant maximum.

Some also opt to top up the RESP with an additional $14,000 early on. While this portion doesn’t earn CESG, it starts growing tax-deferred right away, allowing more time for compound growth.

Final Thoughts: Making the Most of Your RESP

A Registered Education Savings Plan (RESP) is a powerful tool to help parents and guardians prepare for the rising costs of post-secondary education.

When it comes time to withdraw funds, understanding tax-efficient strategies can help minimize costs and maximize support for the student’s education. Additionally, in cases where the RESP is not used, having a backup plan—such as transferring funds to an RRSP or changing the beneficiary—ensures the savings don’t go to waste.

With careful planning and smart contribution strategies, an RESP can make a significant difference in easing the financial burden of higher education, allowing families to invest in their children's future with confidence.

Jacqueline Ozdemir is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at (905) 272-2750 or visit www.fergusonfinancialplanning.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and Canadian Investment Regulatory Organization.

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