What Are Registered Education Savings Plans?

The rising costs of post-secondary education can be daunting for many families. However, with careful financial planning and the right investment vehicle, such as registered education savings plans (RESPs), the dream of providing quality education for your children can be more achievable.

What is an RESP?

A registered education savings plan (RESP) is a specialized savings account designed to help Canadian families save for their children’s post-secondary education.¹ Administered by the Government of Canada, RESPs offer tax advantages and various investment options to encourage parents, family members, and friends to contribute toward a child’s educational fund.

Key Features of RESPs

There are many benefits of RESPs, including:

Tax-Deferred Growth
One of the most significant advantages of RESPs is tax-deferred growth. Contributions to the plan are not tax-deductible, but the investment income generated within the plan grows tax-free until the funds are withdrawn for educational purposes.²

Government Grants
The Canadian government provides additional savings incentives through the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). The CESG matches a percentage of your contributions, whereas the CLB provides additional funds for families with modest incomes.

The CLB can provide up to a lifetime maximum of $2,000 for each eligible child from families with low income.

The CESG can provide up to a lifetime maximum of $7,200 to an RESP.

Flexible Contribution Limits
RESPs have a lifetime contribution limit of $50,000 per child.³ Although there is no annual contribution limit, it is essential to consider the CESG limits to maximize the government grant.

Beneficiary Flexibility
RESPs allow flexibility in choosing the beneficiary. If one child decides not to pursue post-secondary education, the funds can be transferred to another eligible beneficiary within the family.

Types of RESPs

Now that you understand the benefits of RESPs, let us look at the different types:^4,5

Individual RESPs
This plan allows contributions for one beneficiary and is often chosen for families with a single child. It offers flexibility in terms of contribution amounts and investment choices.

Family RESPs
Ideal for families with multiple children, family RESPs enable contributions for more than one beneficiary. This plan makes it easier to distribute funds among siblings.

Group RESPs
Managed by scholarship plan dealers, group RESPs pool contributions from different investors and invest the funds collectively. Although they offer a fixed schedule of payments, they may come with certain restrictions and fees.

Selecting the right RESP involves carefully considering the number of beneficiaries, investment preferences, and risk tolerance. Consulting with a financial advisor can help you navigate the complexities of the various plans available and tailor a strategy that aligns with your goals.

RESPs are a powerful tool for Canadian families wanting to provide their children with quality post-secondary education. With the right combination of contributions, government grants, and investment strategies, RESPs offer a tax-efficient way to build a nest egg for the academic future of your loved ones.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.