RESP – Registered Education Savings Plan Advantages, grants, etc.
An RESP is a plan that allows you to save money to finance post-secondary education.
Here is what you should know about the RESP.
What are the advantages of an RESP?
- Your deposits grow tax-free.
- To encourage saving for post-secondary education, the governments of Canada and Québec are providing grants that are added to your savings. This sometimes depends on your income.
How much can I contribute?
Your total contributions can’t exceed $50,000. For example, you can contribute $5,000 per year over 10 years, or even $50,000 in a single year.
Each contribution makes you eligible for a grant. However, the amount of the grant is limited by a maximum.
- If you contribute a large amount in a single year, your grant could be limited by this maximum. You could therefore lose grants to which you may have been entitled had you spread your contributions over several years.
- For more details, refer to the section entitled Can contributions be deferred to another year?
What government grants are available?
Québec Education Savings Incentive (QESI)
To encourage saving for education, the Government of Québec pays a reimbursable tax credit directly into your RESP.
- The credit is equivalent to 10% of the contributions paid over the course of a year, up to a maximum of $250. For example, Mr. Tremblay opens an RESP for his son Jean and puts in $2,000. Revenu Québec pays $200 into the RESP, which represents 10% of the contributions Mr. Tremblay made in 2014.
- Low-income families may see their credit increase by $50 per year. Your RESP provider must apply to Revenu Québec for it.
For the QESI eligibility requirements, visit the Revenu Québec
This link will open in a new window website.
Check before you invest!
Visit Revenu Québec’s This link will open in a new window website to see if your RESP provider takes part in QESI. Otherwise, you may not acquire all the advantages for which you’re eligible.
The Canada Education Savings Grant (CESG)
No matter what your family income is, 20% of the first $2,500 contributed annually will be added to the RESP (maximum $500 per child).
- For example, if you contribute $3,000 to your child’s RESP in a year, the amount added to the RESP will be $500 (20% of $3,000 = $600, but the maximum of $500 applies).
Low- and middle-income families receive an additional CESG. Your RESP provider applies for the grant on your behalf. Visit the Government of Canada website This link will open in a new window to find out if you’re eligible for an additional CESG.
For the CESG eligibility requirements, visit the Government of Canada This link will open in a new window website.
The Canada Learning Bond (CLB)
Low-income families are eligible for $500 the first year, and then $100 every year afterward until the child turns 15.
Your RESP provider applies for the grant on your behalf. Visit the Government of Canada website This link will open in a new window to find out if you’re eligible for the CLB.
For the CLB eligibility requirements, visit the Government of Canada This link will open in a new window website.
Can contributions be deferred to another year?
Since 2008, if your contributions don’t allow you to receive the maximum CESG or QESI grant in a given year, you won’t automatically lose the grant. You can contribute more in the following years to compensate and obtain the full grant or a portion of it.
However, despite any accumulated rights, the maximum annual basic grant you can receive is $1,000 for the CESG and $500 for the QESI. Depending on the amount you contribute, you may not receive all the grants for which you would have been eligible had you contributed every year.
Can grants be transferred?
If the RESP beneficiary changes, the government grants are transferred according to specific rules. Check with your representative.
To receive the maximum grants, you must put $2,500 per year into the RESP.
How do RESP withdrawals work?
Educational assistance payments
An educational assistance payment (EAP) consists solely of amounts derived from grants and investment earnings. An EAP is taxable income for your child. RESP contributions are not included in an EAP.
Here are the main rules that apply to EAPs:
- Students must add the amounts they receive to their income tax return. They may have to pay income tax on these amounts.
- Inquire of your RESP provider about EAP timelines and conditions.
Withdraw your contributions
- You can withdraw your contribution money, either for yourself or for the student.
- You can use the money from your contributions as you like (savings, investment, donations, education expenses for your child, etc.).
- Neither you nor the student will have to pay any taxes on this portion of the RESP.
The RESP and income tax
Event | Impact on income tax |
|---|---|
Contribute to an RESP | No tax deduction. |
Receive a grant in the RESP | No taxes to be paid provided the grant stays in the RESP. |
Earn investment incomeInvestment income is the money that an investor earns through their investment. This money can be in the form of interest, a capital gain, etc. in the RESP | Tax-sheltered as long as it remains in the RESP. |
Withdraw the amounts invested (contributions) | No taxes payable. |
Withdraw government grants and investment income | This money:
|
Once the EAP request has been approved, you can also withdraw the money from the contributions made to the RESP. You can use it as you like (savings, investment, donations, education expenses for your child, etc.). You won’t be taxed on these amounts.
4 steps to help you choose an RESP
A Registered Education Savings Plan (RESP) will help you save money to finance post-secondary education. It offers several advantages.
Here are steps to follow to help you choose the plan that’s right for you.
Step 1
1. Find out about the different types of RESPs
There are three types of plans, so it’s up to you to decide which one is best for you.
Family plans
- These are the only plans that can have more than one beneficiary.
- You must be related to the beneficiary by blood or adoption.
- You can choose the amounts contributed to the plan and determine the types of investments in keeping with your risk tolerance and investment horizonAn investment horizon is the period after which an investor will start to withdraw money from their investments. For example, a person who saves money to buy a house in 5 years has an investment horizon of 5 years. . Ask a representative for assistance, if necessary.
- If one of your children doesn’t pursue their studies, the money saved can be used to pay for another child’s education.
Individual plans
- You can only select one beneficiary.
- ou don’t need to be related to the beneficiary by blood or adoption.
- You can choose the amounts contributed to the plan and determine the types of investments in keeping with your risk tolerance and investment horizon. Ask a representative for assistance, if necessary.
- If the beneficiary doesn’t pursue their studies, the money saved can be used to pay for another child’s education, when permitted by the contract.
Group plans
- You can only select one beneficiary.
- You don’t need to be related to the beneficiary by blood or adoption.
- You don’t choose your investments. The plan provider is responsible for selecting them.
- If you withdraw from the plan before it reaches maturity, you might not receive the return generated by your contributions. It might be divided among all plan subscribers.
- In the case of certain contracts, if the beneficiary doesn’t pursue their studies, the money saved can be used to pay for another child’s education.
- Other rules and conditions apply to RESPs. Gather as much information as you can. For instance, what are the applicable fees? What will happen if you stop making contributions to the plan?
- Group plans might impose additional conditions for receiving educational assistance payments. Ask about these conditions.
Comparison of the three types of RESPs
Features | Family | Individual | Group |
|---|---|---|---|
Number of beneficiaries | Several | Only one | Only one |
Requirement to be related by blood or adoption | Yes | No | No |
Investment decisions | Yes, but you can ask an authorized representative for assistance. | Yes, but you can ask an authorized representative for assistance. | No |
If beneficiary doesn’t pursue education | Contributions can be used for other child(ren) | Can designate another beneficiary, if permitted by the contract | Can designate another beneficiary, if permitted by the contract |
Step 2
2. Be aware of who can offer RESPs in Québec
- Banks, credit unions and education savings plan providers
- Investment dealers
- Mutual fund dealers
- Scholarship plan dealers
Before you make a decision, check the AMF’s Register of firms and individuals authorized to practise to see if the firm or representative you’re dealing with is authorized to offer RESPs. Contact one of our agents, if need be.
Step 3
3. Determine the amount you can save
Individual and family plans
You decide on the amount and the contribution dates.
Group plans
- A contribution schedule is established when you open the RESP. If you don’t make your contributions, you may have to terminate your plan and pay additional fees and interest.
- The best way to determine the amount you want to save in an RESP is to make a budget. The lifetime contribution limit is $50,000 per beneficiary.
- Take into account any applicable fees (enrolment, registration, file opening fees or investment fees) when you make your budget.
Step 4
4. Ask the right questions
Before making a choice, find out about the features of your plan. Here are some questions to ask and some points to check:
About your RESP provider
- Is your provider part of the Québec Education Savings Incentive (QESI)?
- Is it authorized to offer RESPs? Check the AMF’s Register of firms and individuals authorized to practise or speak with one of our agents
About your money
- Can you decide when and how much you want to contribute?
- Will you be required to select investments yourself? What are the investment-related risks?
- Is there a minimum contribution?
- What happens if you stop making contributions?
- Can you withdraw your money if the need arises?
- What happens if you (or the person who is the subscriber) die?
About your plan
- Can you switch plans? If so, under what conditions?
- What type of plan are you being offered: family, individual or group?
- Are there any fees? (Enrolment, registration, file opening or investment fees)
- What is the duration of the contract?
About the education program
- Which education programs are eligible?
- When should you request an educational assistance payment for the beneficiary? When will the payments be made?
- What happens if your child doesn’t pursue post-secondary studies? Can you access the income generated by the investments? Can you designate another beneficiary?
