The Registered Education Savings Plan (RESP) is a valuable tool to help save for your child’s post-secondary education. Most financial institutions offer this product and the concept is quite simple. You, the subscriber, invest into the RESP account, the government provides Canada Education Savings Grant (CESG) and these contributions earn investment returns that are tax sheltered. Then down the road the money is drawn out in a tax effective manner to provide for your child’s education.
But there are several key details that are sometimes overlooked which might help you get more out of your RESP than you normally would have.
How does an RESP Work?
Contribution Limits
You can contribute up to $50,000 per child as a lifetime limit. There are no annual limits on contributions but there is a limit on the amount of CESG that the government will provide. Each year the government will provide a grant of 20% on up to $2,500 of contributions, for a maximum of $500 per year per child and a lifetime maximum of $7,200 per child. Low- and middle-income families may qualify for additional CESG and may also be eligible for the Canada Learning Bond (CLB).
Types of RESPs
There are three types of RESP. You can open an individual RESP for each child or if you have multiple children, you could open a family RESP. The key advantage to a family RESP Is that you can combine contributions for multiple beneficiaries and gain flexibility on how the funds are used down the road. The third type of RESP is a group (or pooled) RESP. This type of RESP is managed by scholarship plan dealers and is less flexible, so this article focuses on the individual and family RESP.
Investment Options
RESP accounts can hold various qualified investments, including mutual funds, stocks, bonds, and GICs. Consider a mix that balances risk and growth based on your investment timeline and risk tolerance. Starting early is always a good idea to allow time for the investments to grow tax sheltered.
Getting the money out
Once you’ve established your RESP, contributed to it over the years and, watched it grow with investment returns and grants, it’s time to think about pulling money out effectively.
It’s not quite as simple as other investment withdrawals.
Step 1: The beneficiary of the RESP (the student) must be enrolled in a qualifying post-secondary education program recognized by the Canada Revenue Agency (CRA)1. Proof of acceptance and enrolment will have to be submitted to your financial institution to make withdrawals.
Step 2: You have to identify the type of withdrawal you want to make.
There are two main types of withdrawals:
Educational Assistance Payment (EAP): This is used for the beneficiary’s education expenses and includes government grants and investment earnings. EAPs are taxable to the student. Withdrawals are restricted as follows.
Full Time – $8,000, for the first 13 consecutive weeks in such a program. After the student has completed the 13 consecutive weeks, there is no limit on the amount of EAPs that can be paid if the student continues to qualify to receive them.
Part Time – $4,000, for the 13-week period.
Post-Secondary Education (PSE) withdrawals (Contribution Withdrawal): This allows the subscriber to withdraw contributions that were made to the RESP. There are no time limits or requirements to receive these amounts, and they are not subject to tax.
Don’t leave money on the table
Generally speaking, you should consider withdrawing EAPs first, because you don’t want to be left with money from CESG or investment growth in the RESP account when the students are no longer enrolled in a qualifying program. If this happens, that money would be paid out as an Accumulated Income Payment (AIP), which would be taxable to the subscriber with an additional 20% penalty levied.
If some conditions are met, that amount can be transferred to the subscriber’s RRSP, but this is not always possible. Since EAPs are taxable to the student, the tax impact is usually lower. In fact, if the student’s total income is less than the Basic Personal Amount ($16,129 in NB for the year 2025), there won’t be any tax to pay. For students that earn higher income, they will be able to use the tuition tax credit to lower their tax bill.
Finally, withdrawing the contributions (PSE withdrawals) does not trigger any tax and is paid to the subscriber who can then decide how to use this money. If there’s an amount left over after paying the education costs, and if the student is old enough, consideration should be given to opening a TFSA for the student so that the excess amount can continue to grow tax free for the benefit of the student.
Final Thoughts: Speak with a Financial Advisor
Contributing to an RESP to help cover post-secondary education costs is an excellent start, but planning on how best to withdraw the money is also important. Since each situation is unique, be sure to discuss with your financial advisor to maximize the benefits of the RESP.
Link 1: https://www.canada.ca/en/employment-social-development/programs/designated-schools.html
