Everything You Need To Know About RESPs


In today’s world, providing the best education for their children has become a top priority for parents. One effective way to prepare for their future is by investing in a Registered Education Savings Plan (RESP). 

An RESP is a government-approved savings account that helps families save money for their child’s post-secondary education. It offers numerous benefits and incentives, making it an attractive option for parents who want to secure their children’s educational journey.

By contributing to an RESP, parents can take advantage of the Canada Education Savings Grant (CESG), which matches 20% of the contributions made annually. This grant can significantly boost the savings potential and help accumulate a substantial amount over time. But what is an RESP, and how does it work? Read on as we answer the most common questions about RESPs.

How Does an RESP Work?

Parents, family, or friends can contribute to an RESP up to the maximum lifetime contribution of $50,000 per child. This money is then invested in the RESP and allowed to grow. Due to the time it takes for contributions to grow in the RESP, they could end up with more money than you initially invested.

If you contribute $10,000 to an RESP in the name of an 8-year-old who dreams of becoming a doctor and it earns 4% annually over the next ten years, then your contribution could be worth up to $14,908.33 by the time they are ready to attend their chosen campus. This will cover a large number of science textbooks.

The money you put into your RESP does not earn you a benefit in terms of taxation. Your investment decisions will determine how much money you can grow. Your advisor can help you decide which investment options will fit your financial plan.

Starting an RESP

Set Up Your RESP Account

Once you have your information ready, it takes only a few minutes to create your RESP. A Social Insurance Number (SIN) is required for you and your children. A government-issued photo ID, such as a driver’s license or passport, for yourself and your children is also required. If you do not have a SIN, make sure to apply for one.

Contribute to Your RESP and Watch It Grow

After you’ve set up your RESP, you should take the time to determine what you can afford to contribute and how frequently. If you’re having trouble making a decision, be sure to consult a financial advisor who can do it for you. Your RESP will grow as you and your children get closer to graduation.

How to Use Your RESP Money

You can withdraw the money you need when your kid is ready to go to university or college. An advisor can help you with your RESP withdrawals by keeping in mind tax rates and the needs of your child.

When Should You Start Saving for an RESP?

Start Saving

The best time to begin saving for an RESP for your child is as soon as possible. The more time the money is allowed to grow, the greater the potential value when your child is ready to pursue their education dreams. No matter what you choose to do, you should always look for ways to maximize your RESP contributions.

What Is the Maximum Amount You Can Contribute to an RESP?

You can contribute a maximum of $50,000 for each beneficiary. You can contribute in different ways. You can decide to save $50 per month from the moment your child is born. Or you could make an annual contribution or deposit $50,000 as a lump sum if there’s a sudden windfall. You can choose how much to contribute if it doesn’t exceed the contribution amount. You will have to pay tax and 1% of the contribution amount per month until it is withdrawn if you contribute too much.

What Happens If Your Child Chooses Not to Pursue Post-Secondary Studies?

If your child opts out of post-secondary studies, you have several options.

  • If your plan allows, you can also name a beneficiary other than the child named in your plan.
  • The original contribution can be withdrawn tax-free, but grants and bonds must be returned.
  • If you have the contribution room, you may be able to transfer tax-free money up to $50,000 from your investment income to your Registered Retirement Savings Plans (RRSPs) or your spouse’s RRSP.
  • You can withdraw your investment income in cash, but you will have to pay tax on it as well as a 20% penalty.

Bottom Line

The best time to start an RESP for your child’s post-secondary education is when they are still babies. Investing in an RESP is an excellent way to secure your child’s future education while taking advantage of government grants and tax benefits.

By starting early and consistently contributing to this registered plan, parents can provide their children with the financial support they need to pursue higher education without the burden of excessive student loans or financial constraints.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.