RESP & CESG: Education Savings Guide

The Registered Education Savings Plan (RESP) is a tax-sheltered account designed to save for a child's post-secondary education. While contributions are not tax-deductible, investment growth inside the plan is tax-sheltered, and when the student withdraws funds for education (Educational Assistance Payments), the growth portion is taxed in the student's hands — who typically has little or no other income.

The biggest advantage of RESPs is the Canada Education Savings Grant (CESG). The federal government matches 20% of annual contributions up to $2,500 per beneficiary, providing up to $500 per year and $7,200 over a lifetime per child. Lower-income families may qualify for the Additional CESG (an extra 10-20% on the first $500) and the Canada Learning Bond (CLB), which provides up to $2,000 with no personal contribution required.

You can contribute up to $50,000 per beneficiary lifetime, with no annual limit. However, to maximize CESG, contributing $2,500 per year is the most efficient strategy. Family plans can name multiple beneficiaries, allowing unused grants for one child to potentially benefit a sibling. If the child does not attend post-secondary education, you can transfer the growth to your RRSP (up to available room), change the beneficiary to a sibling, or withdraw the growth (subject to tax plus a 20% penalty on the grant-matching portion). Plan early — the CESG is only available until the child turns 17.

When choosing between an individual RESP and a family RESP, consider your situation carefully. A family plan allows you to name multiple beneficiaries (who must be related by blood or adoption), and unused educational assistance payments (EAPs) intended for one child can be redirected to a sibling who does attend post-secondary education. This flexibility makes family plans ideal for families with more than one child. Individual plans, on the other hand, can name any beneficiary — including nieces, nephews, or family friends — and are simpler to manage for a single child.

If your child does not pursue post-secondary education, you have several options to avoid losing your savings. First, you can transfer up to $50,000 of accumulated income (growth) to your RRSP if you have sufficient contribution room — this avoids the 20% Additional CESG repayment penalty on growth. The government grants (CESG and CLB) must be returned. Second, you can change the beneficiary to another eligible family member. Third, you can simply withdraw the accumulated income, but it will be taxed as regular income plus a 20% penalty. Your original contributions are always returned to you tax-free since they were made with after-tax dollars. Starting early gives your RESP the maximum time for compound growth and ensures you capture every year of CESG matching.