For many Canadian families, the cost of post-secondary education continues to be a growing concern. From tuition, books, and school supplies to outfitting a first dorm room, back-to-school expenses can quickly add up.
But there’s a way to help make post-secondary education more affordable. Enter the Registered Education Savings Plan (RESP), a product that can assist in covering some of the educational expenses after high school. Designed specifically to help families save for a child’s future education, a RESP offers valuable tax advantages and access to government grants that can significantly boost long-term savings.
RESP Basics
- A long-term savings plan for a child’s post-secondary educational costs
- Any adult can open a RESP for a child and youth ages 18 to 20 can open RESPs for themselves
- RESPs are usually opened through financial institutions
- A RESP can be set up as an investment vehicle
- Contributions are not tax-deductible, but investments inside the account grow tax-deferred
- RESP funds can be used when a child attends a post-secondary school
Accessing Government Grants
One of the biggest advantages of a RESP is access to government incentives. The primary grant is the Canada Education Savings Grant (CESG), which contributes 20% on annual contributions up to $2,500 per child. This means the government can add up to $500 each year to the account.
Over the lifetime of the RESP, a child can receive up to $7,200 in CESG funding. For lower- and middle-income families, additional grant amounts may also be available, making the RESP even more attractive.
For example, if parents contribute $2,500 annually from a child’s birth, they would receive the maximum annual CESG contribution. Over time, those grants, combined with investment growth, can create a substantial education fund.
Starting Early Can Add Up
A RESP is designed to be a long-term plan, allowing for savings to grow over many years. Opening one when a child is young will allow many years of savings growth, and the long-term nature of a RESP can make it ideal for investment options.
The earlier a RESP is opened, the more time investments have to benefit from compound growth. Even modest contributions can grow significantly over 10 to 18 years when invested in a diversified portfolio.*
The appropriate investment mix generally depends on the child’s age and the family’s risk tolerance. Younger beneficiaries may benefit from a growth-oriented portfolio, while those approaching post-secondary education may need a more conservative approach to protect accumulated savings.
Starting early also provides flexibility. Families who face financial challenges in certain years can often catch up on missed grant opportunities through future contributions.
As well, a RESP can have multiple contributors, which can allow grandparents, aunts, uncles, or friends add to the savings for your child. A RESP can be opened if the beneficiary is a Canadian resident and has a Social Insurance Number, which means potentially having a plan in place within a child’s first few years. There is no annual contribution limit, but there is a lifetime limit of $50,000.
When it’s time for post-secondary education, RESP withdrawals can be made and paid to the beneficiary. These withdrawals are generally divided into two categories:
Post-Secondary Education Payments (PSEs): These come from the original contributions and can be withdrawn tax-free because contributions were made with after-tax dollars.
Educational Assistance Payments (EAPs): These consist of government grants and investment earnings. EAPs are considered taxable income for the student, who often has little or no income, resulting in minimal tax liability.
This structure can make RESP withdrawals highly tax efficient.
A Valuable Tool for Long-term Savings
For Canadians, RESPs combine tax-deferred growth, government grants, and compounding to build education savings and ease post-secondary costs.
Opening a RESP early and contributing consistently can help parents, grandparents, and guardians turn education goals into reality and give children a stronger financial foundation.
*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual funds and other securities are not insured nor guaranteed, their values change frequently and past performance may not be repeated.