Quick answer
An RESP (Registered Education Savings Plan) works by allowing you to save money for a student’s future education in a registered account. You contribute after-tax dollars, and the investments in the plan grow tax-deferred while they remain inside the RESP. The government may add grants, such as the Canada Education Savings Grant (CESG), to boost savings. When the student enrolls in a qualifying program, funds are withdrawn. Contributions come back tax-free, while earnings and grants are paid as Educational Assistance Payments (EAPs) and are taxed in the student’s hands.
What does this mean?
An RESP involves three key roles:
• Subscriber: the person who opens the RESP and makes contributions
• Beneficiary: the student who will use the funds
• Promoter: the financial institution that administers the RESP
The RESP is designed to help cover post-secondary education costs such as tuition, books, housing, and other eligible expenses.
At a glance
Step-by-step: how an RESP works
1. You open an RESP
A subscriber sets up an RESP with a financial institution and names a beneficiary. Some plans allow multiple beneficiaries if they are related under a family plan.
2. You make contributions
You contribute money into the RESP over time.
• Contributions are made with after-tax dollars
• They are not tax deductible
• There is no annual contribution limit, but there is a lifetime maximum of $50,000 per beneficiary
3. Government grants are added
Eligible contributions may receive government support:
• The Canada Education Savings Grant (CESG) matches 20% of your contributions to up to $500 per child, per year, with a lifetime maximum of $7,200.
• Other programs, such as the Canada Learning Bond (CLB), may apply based on eligibility
These grants are deposited directly into the RESP to increase the total savings.
4. Your savings grow tax-deferred
The funds inside the RESP can be invested, but investment returns are not guaranteed.
• Investment earnings stay inside the account
• No tax is paid on growth while it remains in the RESP
This allows savings to compound over time.
5. Funds are withdrawn for education
When the beneficiary enrolls in a qualifying post-secondary program:
• They can receive Educational Assistance Payments (EAPs), which include grants and investment earnings
• EAPs must be reported as income by the student
• Original contributions can be withdrawn tax-free by the subscriber
Withdrawn funds can be used for expenses such as tuition, books, housing, tools, and transportation.
Requirements, restrictions, or watch-outs
• Contribution rules: RESP contributions are not tax-deductible and must comply with contribution limits and plan rules.
• Lifetime contribution limit: There is a total contribution cap of $50,000 per beneficiary across all RESPs
• Plan timelines: RESPs can be open for up to 35 years, with limits on how long you can contribute for.
• Proof of enrollment: The student must show proof of enrollment to receive EAPs
Practical guidance
• Start early to benefit from tax-deferred growth over time
• Track how much you contribute to stay within lifetime limits
• Monitor grant eligibility and unused grant room
• Understand the difference between contributions and EAPs before withdrawing
• Ask your provider how withdrawals are handled and what documentation is required
How Embark helps
RESPs involve multiple steps, from opening the account to tracking grants and withdrawals. Embark focuses on simplifying these steps:
• You can open and manage your RESP online without visiting a branch
• Government grant applications are supported during onboarding, helping ensure eligible incentives are captured
• You can make flexible contributions
• The Embark Student Plan uses a glidepath investment strategy that automatically adjusts investments as the child approaches school age
These features support each stage of how an RESP works, from setup through withdrawals.
Frequently Asked Questions
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