A Registered Education Savings Plan (RESP) is a special savings account that allows money deposited for a child’s post-secondary education to grow tax-free until the person named enrolls in studies after high school.
Having an RESP helps families save for their children’s post-secondary education and also encourages them to plan early for school. RESPs can be used to pay for full-time or part-time studies in a college or university, trade school, CEGEP or an apprenticeship program.
What are the benefits?
The Government of Canada helps savings in RESPs grow more quickly by offering special savings incentives, such as the Canada Education Savings Grant and the Canada Learning Bond.
- RESP contributions up to $2,500 per year are eligible for a 20 per cent Canada Education Savings Grant, up to a lifetime maximum grant of $7,200 per child.
- Children from low-income families eligible for the National Child Benefit Supplement could receive an initial Canada Learning Bond of $500 in their RESP, with additional payments of $100 each year until age 15.
Who can open an RESP?
Anyone can open an RESP account for a child—parents, guardians, grandparents, other relatives or friends.
What do I need to do to open an RESP?
Your child must have a Social Insurance Number (SIN). If he or she doesn’t have one, then you can apply for one by downloading the SIN Application Form.
How much can I put into an RESP?
Up to $50,000 for each child (named in one or more RESPs). Although there are no annual limits on contributions made to an RESP, the Canada Education Savings Grant will only be paid on the first $2,500 of contributions made every year.
If the child has accumulated grant room, then the Canada Education Savings Grant will be paid on the first $5,000 of contributions made per year.
Can I open an RESP for myself?
- You can open an RESP at any age.
- While you can open a plan for a child, you can also name yourself or another adult as the beneficiary.
- Please note that all children up to the age of 17 are entitled to the Canada Education Savings Grant.
- An RESP allows adults to earn interest on their registered education savings plan tax-free.
How is an RESP taxed (assuming the child continues education after high school)?
- Your money grows tax-free while it is in your RESP.
- You don’t get a tax deduction for the money you put into an RESP.
- The money that your investment earns while it is in the RESP won’t be taxed until money is taken out to pay for your child’s education.
- Money paid out of the RESP as an Educational Assistance Payment is taxed in the hands of the student. Since many students have little or no other income, they can usually withdraw the money tax-free.
- The money that you have put in the RESP is returned to you, tax-free.
For more information, please phone the Canada Revenue Agency at 1-800-959-8281. Or visit the Educational Assistance Payments section of the Canada Revenue Agency’s Web site.
How is an RESP taxed if a child decides not to continue education after high school?
- You will not be taxed on the amount you contributed to the RESP, but you will have to pay taxes on the money that you earned in your plan as interest. This money is called “accumulated income”. It will be taxed at your regular income tax level, plus an additional 20 percent.
- The money that you have put into the RESP is returned to you.
- The Canada Education Savings Grant can be shared with a brother or sister if they have grant room available—otherwise, the grant must be returned to the Government of Canada.
- When you close your RESP, you will have to pay tax on the earnings in the RESP. (Although there will be earnings on the Canada Education Savings Grant, the grant must be returned to the Government of Canada.) You may be able to reduce the taxes you have to pay by transferring your accumulated income to either your or your spouse’s Registered Retirement Savings Plan. For more information, see the Accumulated Income Payments section of the Canada Revenue Agency’s Web site.
Can more than one RESP be opened for a child?
Yes. A child can be named as the beneficiary of more than one RESP account. However, you should be aware of the following information.
1. There is a lifetime limit of $50,000 that can be contributed for each child.
2. Be sure to find out if anyone else is making contributions to a plan for that child so that you don’t go over any limits when you decide how much money to put into an RESP.
Where can I find out more about RESPs?
For more information, please call the Canada Revenue Agency at 1-800-959-8281 or visit their web site: http://www.cra-arc.gc.ca.