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A basic guide to RESPs

Registered Education Savings Plans (RESPs) are registered through the Federal Government to help families save for their children's education. By putting money away each year, you can ensure that your child will be able to afford the costly expense of a post-secondary education.

Key terms

Here is a glossary of common terms you’ll find when dealing with RESPs.

  • Subscriber: the subscriber is the individual who opens an RESP account, entering into a contract with a promoter and naming one or several beneficiaries on whose behalf the contributions are made. For individual plans, there are no restrictions on who can be a subscriber.
  • Beneficiary: the beneficiary of an RESP is the person (usually the child of the subscriber, but not necessarily) who will benefit from the contributions made in the RESP.
  • Promoter: is the institution or company that sets up the RESP and pays the contributions as well as the income earned on the contributions to the beneficiaries.
  • Contributions: the funds the subscriber (or subscribers) deposits into a RESP. Unlike with RRSPs, these contributions are not tax-deductible. However, this does mean that you can withdraw them at any time without having to pay additional income tax.
  • EAP: Educational assistance payments are funds beneficiaries can withdraw from an RESP account to pay for their post-secondary education. They include the earnings (interest and other income) accumulated in an RESP as well as government grants but do not include the subscriber’s contributions. When withdrawn, they count as taxable income for the beneficiary.
  • ROC: Refund of Contributions is a withdrawal of the contributions. Because contributions were made from a subscriber’s after-tax income, an ROC has no additional tax penalty.
  • AIP: Accumulated Income Payments are withdrawals of the income earned on an RESP available if the beneficiary does not attend post-secondary education. It does not include any government grants, which are returned to the government. AIPs become taxable income once withdrawn. If you have unused contribution, you can reduce the amount of tax you pay by transferring your AIP directly to your RRSP.
  • CESG: the Canada Education Savings Grant is a federal grant that matches a percentage of the subscriber’s contributions to an RESP up to $7,200.
  • BCTESG: the British Columbia Training and Education Savings Grant is a provincial incentive that provides a one-time grant of $1,200 towards an RESP for residents of BC born in 2006 or later. The BCTESG is available on the child’s sixth birthday.
  • CLB: the Canada Learning Bond is a federal government grant to help income-qualified families save for their children’s post-secondary education.

ONLINE TOOL

Our RESP calculator can help you plan your savings for your children’s education.
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Highlights of an RESP

A lifetime limit of $50,000 per beneficiary can be contributed to an RESP, which can be kept open for up to 36 years.

Interest earned on an RESP is tax-free. When the plan’s beneficiary starts withdrawing the money for school, only the accumulated interest is taxable as income.

Anyone can contribute to an RESP, not just the parents of the child, so you can open or contribute to the RESP of a grandchild, niece, nephew, godson, goddaughter, neighbour’s kid, etc. You can even open an RESP for yourself.

MAKE THE MOST OF YOUR RESP CONTRIBUTIONS

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Family plan vs. individual plan

Family plans can have multiple beneficiaries all of whom must be related to the subscriber and allow the flexibility to name one or more children as beneficiaries, and add or change beneficiaries at any time. If one of the beneficiaries decides not to attend a post-secondary institution, other beneficiaries can make use of the funds.

Individual plans have a single beneficiary only who may or may not be related to you. An individual plan is also ideal for one-child families, or for those who require individual plans for each child (for example in a situation of blended families.) The beneficiary named in an individual plan could be replaced by another—subject to restrictions.

Term deposits vs. Mutual funds

An RESP account is a vehicle that can hold a portfolio of investments. The type of investment that is best suited for an RESP depends on your investor profile as well as how soon the beneficiary will need access to the funds.

Term Deposits guarantee you a set return on your money over a fixed period of time, which can be very beneficial when saving for a specific date in the future. There are short and long-term deposits. Short-term deposits usually require a higher investment than long-term deposits, and often have a slightly lower rate of return. Term deposits pay out interest monthly on any term longer than 90 days.

EXPERT TIP

Contribute to a Registered Education Savings Plan to take advantage of the 20% additional grant provided through the Canada Education Savings Grant.

Mutual Funds are a bit more complicated than term deposits. The potential exists to make more money; however, a return is never guaranteed. Even with a mutual fund that invests in guaranteed government bonds, there is an element of risk.

Mutual funds have management fees associated.

Talk to an expert

Everyone’s financial journey is unique. Saving for your children’s education needs to fit within your goals. To learn more about which RESP is the best for you at this point in time and how to make it a healthy part of your financial picture, make an appointment with our experts. We will help you plot your way so you can thrive.

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