A Registered Education Savings Plan (RESP) is a special savings account for parents who want to save for their child’s education after high school.
- What is a RESP and how does it work?
- How much money does the government contribute to an RESP?
- What are the benefits of an RESP?
- What happens to RESP when child turns 18?
- What are the disadvantages of RESP?
How RESPs are taxed
Child who continues education after high school
- Your money grows tax-free while it is in your RESP.
- You do not get a tax deduction for the money you put into an RESP.
- The money that your investment earns while it is in the RESP will not 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 call the Canada Revenue Agency at 1-800-959-8281 or visit the Educational Assistance Payments section of the Canada Revenue Agency’s website.
Child who 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 CESG 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 CESG, 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 (RRSP). For more information, see the Accumulated Income Payments section of the Canada Revenue Agency’s (CRA) website.
- Talk to your RESP provider to find out about any conditions that may apply to the plan if your child does not continue his or her education after high school.
Tracking RESP money contributions
Family plan contributions
If you have a family plan with two or more children, contributions must be tracked for each child named in the plan. You can make more than one contribution at a time, and the amounts do not have to be the same for each child.
Group plan contributions
When you open a group plan, you agree to make contributions into the group RESP at set times for the duration of the RESP contract.
The RESP provider will credit the money you put into the group RESP to an account in your name. Any government grants or bonds received by the beneficiary (child) will be put into a separate account that is in the beneficiary’s name.
The interest earned on your savings can be shared within the group plan; however, the interest earned on government grants or bonds cannot be shared and goes directly to the child named in the RESP.
Naming a replacement beneficiary
You may change the beneficiary named on an individual, family or group RESP.
Ask your provider how your contributions will be affected if you switch beneficiaries. (Before opening an RESP, check with your provider to find out about the terms and conditions of the plan.)
As with opening any RESP, the new beneficiary’s Social Insurance Number (SIN) must be provided.
Adding another child to an RESP family plan
If you wish to add another child to an existing RESP family plan, the child must be related to you by blood or adoption, and he or she must:
- be under 21 years old at the time you add him or her to the plan; or
- have been a beneficiary of another family RESP immediately before being added to this one.
As with any RESP, you must provide the new beneficiary’s SIN to the RESP provider.
If the Canada Education Savings Grant, Canada Learning Bond or British Columbia Training and Education Savings Grant (BCTESG) has already been paid into the RESP, you can add a brother or sister of the existing beneficiary to the plan without penalty.
While the Saskatchewan Advantage Grant for Education Savings (SAGES) can only be paid into a sibling-only plan, a cousin can be added to the plan without having to repay the SAGES already in the RESP.
If you add a beneficiary who is not a brother or sister of the beneficiaries already named on the plan, you will need to repay the grants or bonds to the Government of Canada.