Registered Education Savings Plan (RESP) (2024)

FAQs

Registered Education Savings Plan (RESP)? ›

The Registered Education Savings Plan (RESP) is a long-term savings plan to help people save for a child's education after high school, including trade schools, CEGEPs, colleges, universities, and apprenticeship programs. An adult can also open an RESP for themselves.

Here is an overview of how an RESP generally works. A subscriber enters into an RESP contract with the promoter and names one or more beneficiaries under the plan. The subscriber makes contributions to the RESP. Government grants (if applicable) will be paid to the RESP.

Yes, you will claim this as part of your income. The income is not on the amounts that were contributed to the RESP, but only on the Canada Education Savings Grant(CESG) and income earned (income earned on grant and contribution) over the years. Lets look at a simple example.

The American 529 plan is similar to an RESP in that it is an investment vehicle for parents to contribute to their child's education.

What happens to the RESP if my child decides to study outside of Canada? RESPs can be used to cover education outside Canada, so your child will have the flexibility to decide where and what they want to study. However, not all foreign education expenses may be covered by EAPs.

If you use RESP funds for non-educational purposes when leaving Canada, you may face taxation on the accumulated income, and government grants may need to be repaid. Is there a time limit for using RESP funds after leaving Canada? There is no specific time limit for using RESP funds after leaving Canada.

Absolutely! Non-residents can open an RESP for a beneficiary who is a Canadian resident. However, they may not be eligible for the government grants that Canadian residents can receive.

What if my child goes to college in the U.S. or elsewhere? Good news: beneficiaries attending approved foreign educational institutions are usually fully eligible for RESP funding.

Double tax issues

This means that for U.S. income tax purposes, an RESP is not a tax-deferred plan. As a result, any income and capital gains earned within the RESP are subject to U.S. tax on an annual basis.

Contribute any amount to an RESP, subject to a lifetime contribution limit of $50,000 per beneficiary. You can contribute to an RESP for up to 31 years, and the plan can remain open for a maximum of 35 years.

Does RESP beneficiary need to live in Canada? ›

Initially, RESP beneficiaries must be Canadian residents with a valid Social Insurance Number (SIN). Exceptions allow non-residents as beneficiaries in specific cases, such as transfers from plans opened before 1999.

How RESPs work. You contribute money into a child's RESP. The government will then contribute an additional 20% on the first $2,500 contributed annually, up to a maximum of $500 a year. That can add up to $7,200 over the lifetime of the RESP, per child, in grant money through the Canada Education Savings Grant (CESG).

For most families, the optimal strategy for funding an RESP is likely a hybrid approach: maximize tax-sheltered growth by contributing a moderate lump sum early, then contribute $2,500 annually to maximize the CESG.