Planning for a child’s post-secondary education can feel overwhelming, but Canada offers one of the most powerful tools available to families: the Registered Education Savings Plan (RESP). This plan combines tax advantages with government grants, making it one of the most efficient ways to prepare for future education costs.
What Is an RESP?
A Registered Education Savings Plan (RESP) is a tax-advantaged account created to help families save for a child’s college, university, or trade school expenses. Anyone, parents, grandparents, relatives, or friends can contribute. The child who will use the funds is known as the beneficiary.
An RESP grows faster than a traditional savings account because of its unique benefits.
Tax-Sheltered Growth
One of the major advantages of an RESP is that all investment earnings, interest, dividends, and capital gains, grow tax-free while inside the plan. This allows money to compound more effectively over time, helping families reach their education savings goals faster.
Government Grants: Free Money for Education
To encourage saving, the federal government provides generous grants that go directly into the RESP.
✔ Canada Education Savings Grant (CESG)
- The government matches 20% of the first $2,500 contributed each year
- Maximum CESG per year: $500
- Lifetime CESG limit: $7,200
✔ Additional CESG
For families with lower incomes, the government contributes an extra 10%–20% on the first $500, increasing the match to 30%–40%.
✔ Canada Learning Bond (CLB)
For eligible low-income households:
- Up to $2,000 total
- No contributions required—just open the RESP
These programs significantly increase the value of RESP contributions.
Contribution Limits
RESPs have a lifetime contribution limit of $50,000 per child. There is no annual contribution limit, but government grants only apply to the first $2,500 contributed each year.
Withdrawing Funds for Education
When the beneficiary starts a qualifying post-secondary program, RESP funds can be withdrawn in two ways:
Educational Assistance Payments (EAPs)
- These come from the grants and investment growth
- Taxed in the student’s hands, usually at very low tax rates
Post-Secondary Education (PSE) Withdrawals
- These are withdrawals of your original contributions
- Completely tax-free, since you’ve already paid the tax
This structure makes paying for tuition, books, housing, and other expenses much more manageable.
If the Child Doesn’t Pursue Post-Secondary Education
RESPs remain flexible even in this scenario:
- Transfer the funds to another child
- Keep the RESP open for up to 36 years
- Withdraw your contributions tax-free (but repay the grants)
- Transfer up to $50,000 of accumulated investment growth to your RRSP (if you have contribution room), known as an Accumulated Income Payment (AIP)
✅ The AIP transfer goes to the subscriber’s RRSP, not the child’s.
In an RESP, the subscriber (usually the parent or grandparent who opened the plan) owns the account.
So when the child does not pursue post-secondary education and there is accumulated investment income (growth), the rules allow:
Accumulated Income Payment (AIP) → Transfer to the subscriber’s RRSP
- Up to $50,000 of the investment growth (not contributions, not grants)
- Can be transferred to the subscriber’s own RRSP
- Only if the subscriber has available RRSP contribution room
- This transfer allows the subscriber to avoid paying tax + 20% penalty that would otherwise apply to AIP withdrawals.
❌ It does not go to the child’s RRSP
Even though the RESP was set up for the child, the ownership stays with the subscriber.
The beneficiary (child) never owns the RESP funds directly.
Why RESPs Matter
RESPs provide:
- Tax-free investment growth
- Substantial government grants
- Flexible withdrawal options
- Long-term financial benefits for children and families
No other education savings plan offers such a strong combination of government support and tax efficiency.
Brian Madigan, LL.B., Broker