Education Savings Made Easy: 12 Must Know RESP Tips

The Registered Education Savings Plan (RESP) is a valuable tool for Canadians to save for a child’s post-secondary education while benefiting from government grants and tax-deferred growth.

Here are the best tips to optimize its use:

1. Maximize Government Grants

• Canada Education Savings Grant (CESG): The government matches 20% of your contributions up to $500 per year, per child, with a lifetime limit of $7,200 per child.
  • Contribute at least $2,500 annually to maximize the CESG.
  • If you’ve missed previous years, you can “catch up” on unused CESG room
• Additional CESG: Low- and middle-income families may qualify for an extra 10–20% on the first $500 contributed annually.
• Canada Learning Bond (CLB): Families with modest incomes may receive up to $2,000 per child without needing to contribute.

2. Start Early

• Contributions grow tax-free within the RESP, so starting early allows more time for compounding growth.
• Even small, consistent contributions add up over time, and the earlier you start, the more CESG room you can capture.

3. Choose the Right Plan

• Individual Plan: Best for one beneficiary, offering flexibility in contributions and withdrawals.
• Family Plan: Ideal for multiple children in the family, allowing funds and grants to be shared among beneficiaries.

4. Invest Wisely

• Tailor investments to your child’s age:
  • Long-Term Horizon (0–10 years): Focus on growth assets like equities or ETFs.
  • Medium-Term Horizon (10–15 years): Gradually shift to balanced funds or bonds.
  • Short-Term Horizon (15+ years): Prioritize capital preservation with low-risk assets like GICs or money market funds.
• Keep an eye on fees, as high management fees can erode returns over time.

5. Understand Tax Implications

• Withdrawals for Education: When withdrawn, contributions are tax-free, while earnings and grants (Educational Assistance Payments or EAPs) are taxed in the student’s hands, typically at a low tax rate.
• Non-Educational Withdrawals: If the child doesn’t pursue post-secondary education, earnings and grants may be subject to tax and penalties.
  • Contributions can always be withdrawn tax-free.
  • Earnings may be transferred to an RRSP (up to $50,000) if you have contribution room.

6. Use RESP Withdrawals Strategically

• Start with EAPs: Withdraw earnings and grants first, as contributions are always tax-free and can be withdrawn later.
• Maximize the Student’s Low Tax Bracket: Spread EAP withdrawals across multiple years to minimize taxes for the student.
• Coordinate with Other Benefits: Ensure withdrawals don’t disqualify the student from income-tested benefits like scholarships or bursaries.

7. Know Contribution and Lifetime Limits

• An RESP can remain open for a maximum of 35 years, with a lifetime contribution limit of $50,000 per beneficiary
• There’s no annual contribution limit

8. Use it for More Than Tuition

• RESP funds can cover a wide range of eligible expenses, including:
  • Tuition fees.
  • Books and supplies.
  • Living expenses, such as rent and food.

9. Coordinate with Other Savings Tools

• Combine RESP savings with other accounts like TFSAs or personal savings to ensure flexibility if the child doesn’t pursue post-secondary education.
• Consider using leftover RESP funds for another sibling under a family plan.

10. Avoid Over-Contributing

• Contributions over the $50,000 lifetime limit incur a 1% penalty per month. Track contributions carefully to avoid this.

11. Plan for Non-Education Scenarios

• If the beneficiary doesn’t pursue post-secondary education:
  • Transfer up to $50,000 in earnings to an RRSP if you have room.
  • Withdraw earnings and grants (subject to tax and grant repayment).
  • Designate another beneficiary under the same family plan.

12. Leverage Provincial Grants

• Some provinces offer additional RESP grants:
  • British Columbia: BC Training and Education Savings Grant (BCTESG) provides $1,200 for eligible children.
  • Quebec: Quebec Education Savings Incentive (QESI) offers an additional 10–20% grant.

By understanding the RESP’s features and leveraging government grants, tax advantages, and flexible investment options, you can efficiently save for your child’s education and ease the financial burden of post-secondary costs.