RESPs: Frequently Asked Questions

Do you have questions about RESPs? We have answers.

What is an RESP?

A Registered Education Savings Plan (RESP) is a savings account registered with the Government of Canada, where:

• You can contribute up to a $50,000 lifetime limit per beneficiary
• Tax on the growth of your investments is deferred until the funds are withdrawn – typically when a child (the beneficiary) is ready for post-secondary education
• You can take advantage of government savings incentives like the Canada Education Savings Grant (CESG)

Who can open an RESP?

Anyone—parent, grandparent, relative or friend—can open an RESP for a child.

Can I open an RESP for myself?

Yes. You can contribute to an RESP for up to 31 years, and name yourself or another adult as the beneficiary of your plan. However, adults are not eligible for the CESG.

When should I open an RESP?

It’s never too soon, but the beneficiary needs to be a resident of Canada and have a Social Insurance Number (SIN).

How do I decide what type of RESP to open—individual or family?

If you are saving for more than one child, you might choose a family RESP where all investments for the children are combined. If one child decides not to pursue higher education, you can name an alternate beneficiary or divide the assets in the plan among the remaining children. The funds don’t have to be shared equally by the beneficiaries.

If there are large differences between the ages of the children, however, you may wish to open separate plans for each child. Since contributions can only be made to an RESP for up to 31 years, separate plans allow you more time to make contributions for a younger child. 

Are there limits on the amount of money that can be contributed to an RESP?

Yes. For each beneficiary, the lifetime contribution limit for all RESPs is $50,000. Although there are no annual limits on RESPs, the CESG adds a maximum of 20% per beneficiary per year to a maximum of $500. In other words, if you contribute $2,500 one year, the federal government will grant you $500. If there are previous CESG grants that you did not use, you can use one year’s unused room per year to contribute an additional $2,500 and receive the associated $500 grant.

Can one child be the beneficiary of more than one RESP?

Yes. A child can be named the beneficiary of more than one RESP. However, there are lifetime contribution limits for each child across all RESPs. Make sure you don’t exceed the lifetime limit by asking other family members if they’re also making contributions to a plan for the child.

What about taxes? Do I get a tax deduction?

Your money grows tax-free while it is in the RESP, and is not subject to tax until:

• The money is withdrawn to pay for the child/beneficiary’s education. Then, the grant and income portions are taxable to the child. Since many students have little or no other income, they can usually withdraw the money tax-free; or
• You close the RESP and pay back any remaining grants.

How long can I contribute to an RESP?

You can generally contribute up to 31 years. An RESP has a maximum life of 35 years. After this, the plan must be closed.

What happens if the RESP contribution limit is exceeded?

If you exceed the lifetime contribution limit, the CRA will apply a 1% per month penalty, payable by the subscriber, on the over-contributed amount, until the over-contribution is withdrawn.

What is an EAP?

EAP stands for educational assistance payment. They are accumulated earnings and grants paid from an RESP to an eligible beneficiary for post-secondary education expenses.

If there aren’t enough accumulated earnings or grants to cover the education expenses, you can take a portion of the contributions to reach the desired withdrawal amount, or reduce the withdrawal amount.

What is an AIP?

An AIP (accumulated income payment) is an amount, usually paid to the subscriber, of the income earned from an RESP. AIPs do not include:

• refunds of contributions
• educational assistance payments
• payments to a designated educational institution in Canada
• transfers to another RESP, or
• a repayment of any amounts under a Canada Education Savings Program or any provincial program.

What happens when a beneficiary is ready for post-secondary education?

As soon as a beneficiary enrolls in a qualifying educational program, they can start receiving money from the RESP in the form of educational assistance payments (EAP).

What is a qualifying educational program?

A qualifying educational program is:

• a post-secondary course of study in Canada that lasts at least three weeks in a row, with at least 10 hours of instruction or work each week, or
• a program at a foreign educational institution that lasts at least 13 weeks and is at a post-secondary level

Programs may include apprenticeships and programs offered by a trade school, college or university. They may also be offered by other institutions certified by the Minister of Employment and Social Development Canada.

Is there a limit to the amount of the educational assistance payments a beneficiary can receive?

Yes. A beneficiary can receive up to $5,000 in educational assistance payments (EAPs) before completing the first 13 consecutive weeks of a qualifying educational program. Once this period is over, the beneficiary can get any amount of EAPs. Students who require more than $5,000 in EAPs during the first 13 weeks of enrolment may apply to Employment and Social Development Canada (ESDC) to receive a larger amount. After 13 weeks, any amount comprising of income and/or grant can be withdrawn.

EAPs only include income and grant money. You can withdraw any amount of your own savings to pay for a child’s education. There may also be specific terms in your RESP that limit the EAP amounts the beneficiary can receive.

What should I do when a beneficiary chooses not to continue education after high school?

If a child named in an RESP decides not to continue education after high school, you may choose to:

• Wait – the child may decide to continue studying later
• Use the money for a sibling who does continue education after high school
• Transfer the money into a Registered Retirement Savings Plan (RRSP) to help you save for your retirement, if you have RRSP contribution room
• Withdraw the contributions you’ve made and return any remaining grants. You will not be taxed on the amount you contributed to the RESP, but you will have to pay taxes on the income you earned in the plan

What happens to the Government of Canada money in an RESP when the beneficiary does not continue his/her education after high school?

If a beneficiary is definitely not going to continue education after high school, any money in that child’s RESP from a Canada Education Savings Grant or Canada Learning Bond must be returned to the Government of Canada. In some circumstances, you may be able to name another beneficiary in an individual plan. In a family plan, the money may be allocated to the remaining beneficiaries.

What happens when I withdraw my money from my RESP?

As a subscriber, you can withdraw your money at any time. You may have to return some or all of the CESG in the account to the Government of Canada.

The income you withdraw from the plan is called an accumulated income payment (AIP). It will be taxed at your regular income tax level, plus an additional 20% (12% for residents of Quebec). You will not be taxed on the amount you contributed to the RESP, but you will have to pay taxes on the money you earned in the plan at your marginal rate.

When can I withdraw the money earned in my RESP?

You may withdraw the income earned in the RESP if:

• All the children named in the plan are at least 21 years old and are not eligible for an Educational Assistance Payment (EAP); and
• You are a Canadian resident; and
• You opened the RESP at least 10 years ago.

 

The information provided in this article is for general purposes only and does not constitute personal financial advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.