When to Start an RESP: Expert Advice and Tips

RESPs, or Registered Education Savings Plans, are smart savings tools to support your child’s higher education. Post-secondary education is a significant financial commitment, and any financial aid can relieve some pressure and help students and families be more prepared when the time comes.

• Read more: What’s The Best Savings Plan?

RESPs are great for helping you invest in your child’s education as contributions grow tax-free and the government provides additional financial incentives to encourage saving. While your funds grow until the beneficiary enrolls in an eligible post-secondary program, you can start contributing long before then.

Let’s explore when you can open and start contributing to an RESP.

Age Eligibility for an RESP

In Canada, there is no minimum age to open a Registered Education Savings Plan (RESP). An RESP can be opened as soon as a child has a Social Insurance Number (SIN). In many provinces, you can apply for your child’s SIN at the same time as you register their birth, like with Ontario’s 5-in-1 newborn bundle.

This means, in many cases, you can open an RESP for your child and start contributing before they even turn one! And the earlier you open an RESP, the more time you have for the contributions to grow in your chosen investments.

The beneficiary of the RESP is the child it is opened for, and they will receive the funds at maturity to pay for their post-secondary education. Once the beneficiary enrolls in an eligible post-secondary program at a post-secondary institution, they can begin withdrawing Educational Assistance Payments (EAP) to pay for education-related expenses, such as:

• Tuition and fees
• Textbooks
• Housing and living expenses
• Transportation
• Equipment and tools

There are no annual RESP contribution limits. You can contribute as much or as little as you like each year, depending on your budget. Some people like to make monthly contributions, while others prefer to make a lump-sum contribution. However, there is a lifetime contribution limit of $50,000 per beneficiary, and a lifetime grant maximum of $7,200.

You can continue to contribute to an RESP until 31 years after it was first opened. The RESP can then remain open for 35 years. After that, the RESP must be closed. 

What Types of RESPs Can You Open?

There are three main types of Registered Education Savings Plans available, each with different features depending on your savings goals and family situation:

Individual (Non-Family) RESP

An individual RESP is set up for one beneficiary. Anyone can open this type of plan, including parents, grandparents, relatives, or even friends, and the beneficiary doesn’t need to be related by blood or adoption. Contributions are flexible, and the plan remains open until the lifetime contribution limit is reached. Eligible beneficiaries may receive both the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB).

Family RESP

A family plan RESP can include one or more beneficiaries, but all must be related to the subscriber by blood or adoption, such as a child, grandchild, or sibling. Contributions are made at the subscriber’s discretion, and the funds can be shared among beneficiaries. If one child doesn’t use all their RESP funds, another can benefit from the remaining amount. While CESG funds can be shared, each child can only receive up to $7,200 in CESG over their lifetime.

Group RESP

Group RESPs are intended for one child per plan, who may or may not be related to the subscriber. These plans are typically more structured, with fixed contribution schedules and potential penalties for missed payments. Contributions are pooled with those of other investors who have children of the same age. The funds are usually managed by the scholarship provider and invested in low-risk options. While group plans may offer disciplined savings, they come with stricter rules and less flexibility.

Maximizing Benefits in an RESP

To maximize the benefits of a Registered Education Savings Plan, it’s crucial to understand the RESP grants offered by the Canadian government that we mentioned earlier:

• Canada Education Savings Grant (CESG)
• Canada Learning Bond (CLB)

Canada Education Savings Grant (CESG)

The CESG matches 20% of annual contributions up to $2,500, providing a maximum of $500 per year per beneficiary. It also provides an additional 10% or 20% on the first $500 contributed, depending on the beneficiary’s annual family net income.

The CESG is only available for contributions made to a Registered Education Savings Plan (RESP) until the end of the calendar year in which the beneficiary turns 17, with specific conditions for contributions made when the beneficiary is 16 or 17 years old.

Canada Learning Bond (CLB)

The CLB is a government program designed to help low-income families start saving for their child’s post-secondary education. It provides financial support directly into a RESP without requiring any personal contributions from the family. Eligible children receive an initial payment of $500 when the RESP is opened, followed by $100 each year they remain eligible, up to the year they turn 15. Over time, this can add up to a maximum of $2,000 per child.

To qualify, the child must be born on or after January 1, 2004, have a valid SIN, and come from a family that meets the income eligibility requirements set by the government. The CLB can also be claimed retroactively, meaning families can still receive missed payments for previous eligible years.

Early contributions are crucial to maximize these government grants, as starting early allows more time for compound growth and ensures that beneficiaries can receive the full amount of available grants over the years.

Why You Should Open an RESP Earlier Rather Than Later

Opening a RESP early is one of the most effective ways to prepare for the cost of your child’s post-secondary education. It not only gives you access to government grants like the CESG but also allows your savings to grow over a longer period, maximizing the benefits of compound growth.

When you start saving early, even small, consistent contributions can turn into a substantial education fund over time. This is largely due to compound growth, which is the process where your investment earnings start earning their own returns.

In an RESP, any interest, dividends, or capital gains earned within the plan are reinvested and grow tax-free until withdrawn. The earlier you start, the more time these earnings have to compound year after year, resulting in accelerated growth. For example, a $1,000 contribution made when your child is a toddler could be worth significantly more than the same contribution made during high school.

Early RESP contributions also ensure you get the most out of the CESG, which matches 20% of your annual contributions up to $500 per year. If you wait too long to contribute, you may run out of time to catch up on unused grant room before your child turns 17.

By opening an RESP early, you give your investments more time to grow, reduce the need for last-minute saving, and take full advantage of government support. It’s a simple step that can lead to big financial rewards when your child is ready to continue their education.

What You Need to Apply for an RESP

To open a Registered Education Savings Plan, you’ll need to complete an application form and provide key details about yourself and the beneficiary. The application generally includes three main steps:

1. Enter your personal information
2. Provide details about the beneficiary
3. Choose the type of RESP you’d like to open (individual, family, or group)

Be prepared to supply the following information and documents:

• Your full legal name
• Date of birth
• Phone number and home address
• Legal name(s) and birth date(s) of the beneficiary or beneficiaries
• Social Insurance Numbers (SINs) for both you and the beneficiary
• Your banking information for contributions and withdrawals

If the beneficiary doesn’t yet have a SIN, they’ll need one before the RESP can be opened. If you’re the parent, you can apply for their SIN after registering their birth and obtaining a birth certificate, or, as we mentioned earlier, you may be able to apply for the SIN at the same time as registering their birth.

Investment Options Within an RESP

RESPs offer a range of investment options to suit different risk levels and savings goals. Choosing the right investments depends on your risk tolerance, financial goals, and how much time you have before your child starts post-secondary education. The earlier you open the RESP, the more time your investments have to grow, giving you greater flexibility to take advantage of higher-risk, higher-return strategies.

Low-Risk Investment Options

• Guaranteed Investment Certificates (GICs)
• High-interest savings accounts
• Government bonds

These options provide stability and predictable returns, making them ideal for families who have opened their RESPs later and are closer to using the RESP funds. Since these investments protect your principal, they’re often chosen in the later stages of the RESP when preserving capital becomes more important than growth.

Higher-Return Investment Options

• Mutual funds
• Exchange-traded funds (ETFs)
• Individual stocks

These are better suited for long-term growth, especially when the RESP is opened early. While these investments can fluctuate in value, the longer timeline gives your savings a better chance to recover from short-term market dips and benefit from long-term growth.

ETFs are a popular choice for their low fees and built-in diversification, while mutual funds may offer professionally managed portfolios for those who prefer a hands-off approach.

Different Scenarios for Opening an RESP

When opening an RESP later in a child’s life, it’s essential to strategize contributions to maximize the benefits of the CESG. However, if contributions are started late, there is an option to receive CESG catch-up grants for previous years in which no contributions were made. In fact, up to $1,000 of CESG can be received annually when catch-up contributions are made.

Here are some different scenarios to consider:

Example 1: Starting an RESP for Your Child at Age 0

If parents start an RESP before the child turns one, they have eighteen years to contribute to the account until the beneficiary turns 18 and is no longer eligible for CESG contributions.

This is the best time to open and start contributing to your child’s RESP. If you contribute $2,500 each year to receive the maximum lifetime CESG amount of $7,200, you’ll reach that in just over 14 years.

By that point, you’ll have contributed $43,200 between your annual $2,500 deposits and the annual $500 contribution from the federal government, which is just $6,800 shy of reaching the lifetime contribution limit of $50,000.

For low-income families, your child may also qualify for the Canada Learning Bond (CLB), which provides an initial $500 contribution to an RESP and $100 each subsequent year up to age 15, totalling up to an additional $2,000.

Example 2: Starting an RESP for Your Child at Age 10

If parents start an RESP when the child is 10 years old, they have eight years to contribute to the account until the beneficiary turns 18 and is no longer eligible for CESG contributions.

Let’s say you contribute $5,000 annually:

• Regular CESG: $500 (20% of $2,500)
• Catch-up CESG: $500 (20% of the additional $2,500)

Over eight years, this approach gives the beneficiary the maximum $7,200 CESG available.

Additionally, the beneficiary can still receive the CLB for each year they qualified for it. The CLB is retroactive, which means, even if you open an RESP for your 10-year-old child, they can still receive back-pay for each one of those 10 years that qualify.

Example 3: Starting an RESP for Your Child at Age 15

If you wait until your child is 15 to open an RESP, there are only three years left for CESG eligibility, but only if you meet the requirements.

To qualify for the CESG at ages 16 or 17, at least one of the following conditions must be met:

1. A total of at least $2,000 was contributed to the child’s RESP (with no withdrawals) before December 31 of the year they turned 15, or
2. Contributions of at least $100 per year (with no withdrawals) were made in at least four separate years before the end of the year the child turned 15

Since you opened the RESP account when your child was 15, you automatically do not meet the second condition. This means you must contribute a minimum of $2,000 before December 31st of the year your child turned 15 in order to still receive the CESG each year until they turn 18.

However, to also receive the additional $500 CESG catch-up grant for missed years, you’ll need to contribute a minimum of $5,000 ($2,500 for the current year and $2,500 for the missed year). This means your annual contribution strategy for the next three years (ages 15, 16, and 17) should be to contribute $5,000 annually:

• Regular CESG: $500
• Catch-up CESG: $500

While still beneficial, because you’ll have earned $3,000 from the CESG, it is much lower than the maximum potential if you opened the account earlier.

Again, because the CLB is retroactive, your child can still receive back-pay for the CLB for each year they qualified for it.

Tax Benefits for RESPs

Registered Education Savings Plans offer several tax advantages that make them an excellent way to save for a child’s post-secondary education, like tax-free growth, which can help you earn more over time when you start saving early.

Tax-Free Growth

One of the biggest benefits of an RESP is that all investment earnings, such as interest, dividends, and capital gains, grow tax-free while the money remains in the account. This means your savings can compound more quickly than in a regular, taxable investment account. Over time, this can lead to significantly higher returns, especially when combined with government contributions like the CESG.

Tax-Deferred Withdrawals

When funds are withdrawn to pay for eligible educational expenses, the money is divided into two parts: the original contributions (which are tax-free when withdrawn) and the accumulated income and grants (called Educational Assistance Payments or EAPs).

EAPs are taxed in the hands of the beneficiary (your child), who typically has little or no income. As a result, the tax payable on these withdrawals is usually very low or even zero, making RESP withdrawals highly tax-efficient.

No Tax Deduction for Contributions

Unfortunately, RESP contributions are not tax-deductible like RRSP contributions.

Nevertheless, the RESP still provides strong tax benefits. The advantage comes from the tax-sheltered growth of your investments and the fact that future withdrawals are taxed at a much lower rate. Additionally, RESP contributions can trigger government grants such as the CESG, further enhancing the value of your savings.

RESPs for Other Eligible Beneficiaries

RESPs can be opened by individuals other than parents, such as:

Grandparents (or Other Family Members)

Grandparents can open an RESP for their grandchild. For example, if a grandparent opens an RESP for their grandchild at age five and contributes $2,500 annually, the grandchild would receive the annual CESG of $500, optimizing the grants and tax-free growth over the years. Plus, the grandparent could choose to contribute $5,000 annually for a few years to qualify for CESG catch-up grants.

Self or Other Adults

An individual can open an RESP for themselves or another adult pursuing higher education. For instance, an adult planning to return to school could open an RESP for themselves, but they would not be eligible for CESG. However, if you are between the ages of 18 and 21, you can still apply for the CLB and receive the initial deposit of $500 plus $100 for each year until you turned 15, as long as you qualify.

By understanding these strategies and contribution scenarios, families can better plan their RESP contributions, even when starting later, to maximize the available government grants and benefits for educational savings.

What Happens to the RESP if the Child Doesn’t Pursue Higher Education?

While an RESP offers significant advantages for funding post-secondary education, sometimes the beneficiary decides not to pursue further education. While this can be frustrating after spending all these years budgeting and saving, ultimately, it is their decision.

Fortunately, RESP accounts are quite flexible, and you have several options for dealing with unused funds. Plus, RESP accounts can remain open for up to 36 years, giving plenty of time to reconsider or change beneficiaries if needed. However, if the funds ultimately aren’t used for education, here’s what can happen:

You Can Transfer It to Another Beneficiary

According to the Government of Canada, you can change the beneficiary on an individual, family, or group RESP. As with setting up any RESP, you’ll need to provide the new beneficiary’s Social Insurance Number (SIN) to make the change official.

However, there are important rules to keep in mind. When you name a new beneficiary, all previous contributions made for the original beneficiary are considered to now apply to the new one. If the new beneficiary already has their own RESP, this could result in an over-contribution, which may lead to penalties.

There are two key exceptions to this rule:

• If the new beneficiary is under 21 years old and both beneficiaries share the same parent, the transfer won’t count as a new contribution for CESG purposes
• If both beneficiaries are under 21 and are related to the original subscriber by blood or adoption, such as siblings, cousins, or grandchildren, the transfer is also allowed without penalties

Always consult your RESP provider to ensure the transfer is handled correctly and to avoid potential over-contribution issues.

You Can Withdraw the Funds

You can withdraw money from the RESP even if it’s not used for educational purposes. However, only your original contributions can be withdrawn tax-free. The investment earnings, known as Accumulated Income Payments (AIPs), are taxable at your regular income tax rate plus an additional 20% (or 12% in Quebec).

Additionally, any government grants, such as the Canada Education Savings Grant or the Canada Learning Bond, must be returned to the government. There is no penalty for withdrawing your own contributions, and they can be returned to the original contributor’s bank account.

You Can Transfer Your Earnings to an RRSP

If you have unused RESP funds and contribution room in your Registered Retirement Savings Plan (RRSP), you may transfer up to $50,000 in earnings tax-free into your RRSP. This avoids the additional tax on the investment income. To qualify:

• The RESP must have been open for at least 10 years
• The beneficiary must be 21 years or older
• The beneficiary must not be pursuing post-secondary education
• Government grants must still be returned to the federal government

In all cases, it’s important to consult with Embark, your RESP provider or a financial advisor to ensure you’re following the correct process and minimizing penalties or taxes.

Frequently Asked Questions About Opening an RESP

Can I contribute to my own RESP?

Yes, you can contribute to your own Registered Education Savings Plan. While RESPs are commonly associated with parents saving for their children’s post-secondary education, adults can also open an RESP for themselves. This can be particularly beneficial if you are planning to pursue further education in the future. Here are key considerations when contributing to your own RESP:

• If you’re over 17, you aren’t eligible for the CESG or the CLB.
• Contributions grow tax-free but investment earnings and government grants are taxed as income when withdrawn.
• There is no annual contribution limit.
• The lifetime contribution limit is $50,000 per beneficiary.
• You must be enrolled in a qualifying post-secondary education program to withdraw funds without penalty.

What happens to the RESP if the child doesn’t pursue higher education?

There are several options if the beneficiary doesn’t pursue higher education:

• Change the beneficiary to another eligible family member, such as a sibling.
• Keep the RESP open in case the beneficiary decides to pursue post-secondary education later in life. An RESP can remain open for up to 36 years or 40 years in some cases.
• Transfer up to $50,000 of the accumulated income in the RESP to a Registered Retirement Savings Plan if the RESP has been open for at least 10 years and the beneficiary is at least 21 years old.
• Withdraw the contributions tax-free. The grants and bond money will be returned to the government.
• Withdraw the accumulated income as an Accumulated Income Payment, subject to regular income tax and an additional 20% tax, or 12% in Quebec.

How can I track the growth in my RESP?

Tracking the growth of your Registered Education Savings Plan involves monitoring contributions, investment performance, government grants, and overall account balance.

Here are several ways to effectively track the growth of your RESP:

• Review your account statements regularly for detailed information about contributions, investment earnings, government grants, and the total account balance.
• A financial advisor can provide regular updates and detailed reports on your RESP’s performance if you have opened an account through one.
• The Canada Education Savings Program provides annual grant statements outlining the grants deposited into the RESP.
• You may receive investment performance reports if your RESP has mutual funds, stocks, and other investments.
• Keep personal records of contributions, grants, and withdrawals.

 

Are there tax benefits associated with RESPs?

Yes, there are tax benefits associated with RESPs:

• Tax-Free Growth: Investment earnings within the RESP grow tax-free until withdrawn.
• Tax-Deferred Withdrawals: Withdrawals used for educational purposes are taxed in the beneficiary’s tax bracket. Being that they typically have little or no income they will be taxed at a minimal rate.
• No Tax Deduction for Contributions: While contributions are not tax-deductible, the tax-free growth and favorable tax treatment of withdrawals provide significant tax advantages.