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Basics of Registered Education Savings Plans (RESP)

August 30th, 2007 ·

Mike of Four Pillars blog commented that the RESP information on the Government of Canada website that I referred to in yesterday’s post has not been updated with RESP changes introduced in the 2007 Federal Budget. As the RESP rules are confusing and widely misinterpreted at the best of times, I hope to provide comprehensive information in this post. You can also refer to Mike’s recent post for examples.

Contribution Rules

Unlike RRSPs, contributions to a RESP are not tax deductible. You can contribute a maximum of $50,000. The investment returns within a RESP are not taxed until money in withdrawn from the plan. There is no annual contribution limit. You can contribute the entire $50,000 lifetime maximum in one year, though the matching Canada Education Savings Grant (CESG) has an annual limit.

Canada Education Savings Grant (CESG)

  1. The Government of Canada matches 20% of your contributions by paying the CES grant directly into your RESP account, irrespective of your household income. In prior years, the maximum CESG was $400 per child for every annual contribution. In the 2007 federal budget, the limit was increased to $500 for 2007 and later years.
  2. Unused grants accumulate and will be paid for future contributions. Prior to 2007, the maximum CESG per year was $800, provided you have unused grants. In 2007 and later years, the maximum CESG per year is $1,000.
  3. The lifetime maximum CES grant that a child can receive is $7,200.
  4. Lower income families are eligible to receive slightly higher CESG and may also be eligible for the Canada Learning Bond.

Withdrawal Rules

You can start withdrawing from a RESP when your child starts full or part-time studies in a qualifying education program. Since contributions made to the RESP plan were taxed already, they are not taxed on withdrawal. Grants paid by the Government into the plan and the growth of the funds within the plan is taxed at the hands of the beneficiary. Special rules apply when a child does not attend post-secondary education.

Family Plans

While an individual RESP account can be set up by anyone, only a family member can set up and contribute to a family RESP. The family plan is identical to individual plans except that more than one child can be the beneficiary of the plan. There is some confusion on how family RESP plans are set up (see the comments section in yesterday’s post).

Group RESPs

Group plans or pooled RESPs are available from a number of vendors. In my opinion, a self-directed RESP is vastly superior and flexible compared to these plans.

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26 responses so far ↓

  • 1 FourPillars // Aug 30, 2007 at 7:36 am

    Thanks for the link!

    Great summary - this is a tough subject to do in one post.

    Mike

  • 2 Canadian Capitalist // Aug 30, 2007 at 9:12 am

    Mike: The RESP rules are so numerous that it is difficult to keep track of them. And they tweak it all the time in the budget. My bet it within a year or two, the current rules will be tinkered with once again!

  • 3 George // Aug 30, 2007 at 11:52 am

    One thing to note about the $50,000 “lifetime limit” - this limit is per-child, not per-RESP. You can have a family RESP with four beneficiaries, and the contribution limit would be $200,000 total. The maximum grant money that any one child could receive would be $7,200.

    CC’s definitely right, though - the rules do change over time.

  • 4 Canadian Capitalist // Aug 30, 2007 at 12:41 pm

    George: Good point. I’ll add the per child caveat to the post.

  • 5 Rob // Aug 30, 2007 at 6:43 pm

    You should note that An RESP has to be terminated on or before the last day of the 25th year after the year in which the plan was entered into. This is important for family plans. If you open a family plan when your first born child is born you may end up having to collapse the plan before subsequent younger siblings are finished or even have started there post secondary education. This is one reason, depending on the age gap, to consider opening a new plan for each child.

  • 6 Canadian Capitalist // Aug 31, 2007 at 11:04 am

    Rob: Thanks for pointing out that RESP plans have a time limit. It would mean that it is best to open one family RESP plan for each child separately.

  • 7 The Big RESP Series // Oct 5, 2007 at 5:01 am

    [...] available to Canadians (my apologies to our non-Canadian readers). This topic has been covered by other blogs and myself in various posts but it’s really a topic for several posts. The tricky part of [...]

  • 8 Little Ms.Scrooge // Jan 11, 2008 at 11:16 am

    RESP can be set up only if the children have SIN numbers. New comers to Canada, on work permit-like myself - will have to wait till we have PR !minimum of 2years) befor the kids can benefit from this scheme.

    P.S we still pay our taxes during this time.

  • 9 Traciatim // Jan 11, 2008 at 12:52 pm

    As it should be, you must earn the privileges of living in the best country on the planet.

  • 10 moneygardener // Feb 3, 2008 at 7:48 pm

    Can someone tell me how the CESG grant is paid, technically. How is the money actually put into the account, and how does the gov’t know when/if it is deposited? I am assuming it is done when you claim it on your taxes for that year, or is it just done automatically some other way?

  • 11 Traciatim // Feb 3, 2008 at 8:37 pm

    In my e-fund account with TD the CESG is just deposited (according to my direction) slightly after any regular deposit. For example, I have a pre-authed payment plan with them to deposit $105 per month on the first of each month. Usually I see another deposit directly after that (sometimes on the same day, or a day or two away) of $21.00. After that point it’s just like any of the other funds and can be moved around at will as long as it’s not withdrawn from the RESP.

  • 12 moneygardener // Feb 3, 2008 at 11:33 pm

    thanks Traciatim

  • 13 Canadian Capitalist // Feb 3, 2008 at 11:35 pm

    MG: As far as I can tell, the CESG grant is deposited automatically into the RESP account at the end of the next month that a lump-sum contribution is made. I am guessing the RESP administrator has a mechanism through which they let HDRC know a contribution has been made and gets the grant deposited for you. For example, if I make a contribution on Feb 20th, I usually notice the CESG grant on March 31st.

  • 14 Mlyon // Feb 10, 2008 at 10:44 pm

    I have a 16 year old son who will turn 17 in 2008 and have missed many contribution years about 8. For the CESG limit of 800 per year(1000 in 2007 onwards) What is the last contribution year for which I can have a previous year catchup. Is it his 18th year or 21rst year before his Bday. without catchup At what age do the CESG normally stop? 17 or 18?
    Please help

  • 15 Andy // Feb 22, 2008 at 2:03 am

    The government somehow keeps track of the unused CESG grants for every SIN. My wife’s parents have contributed to an RESP for our children until now. But their records are incomplete and they can’t tell me when they made contributions and for which child. Where can I find out what the unused CESG grants are so that I can catch up properly?

  • 16 Pablito // Feb 28, 2008 at 2:17 pm

    Mylon, Andy: The HRSDC administers the CESG portion of the RESP and so I’d expect they should be able to answer both your questions directly. If not, I’ve found them to be quite friendly and helpful so they’ll surely point you in the right direction. The number is 1-888-276-3624.

  • 17 DigiGrl // Mar 18, 2008 at 2:00 am

    I have a question about the Family RESP accounts at TD. I opened a couple (?) of them a few weeks ago with the intention of turning them into eFund accounts. I have 2 kids, and I thought that I would only require 1 family account that has both the kids’ on it. Is this how the family accounts are supposed to be set up? One for each child that either can draw on? It just seems weird to me if this is how the family accounts work.

  • 18 Traciatim // Mar 18, 2008 at 6:29 am

    DigiGrl, though the family account is designed so that each child will be able to withdraw amounts from it, it’s probably easier later just to have one account for each child, and especially so if they are more than a few years apart in age.

    Now that the budget is proposing increasing the limit on how many years you can have the RESP open to 35 rather than 25 it’s not as much of an issue, but I still think it will make it more fair to each child if they each have a plan. It would be really hard to withdraw money for one child and ensure that the other child has the same or similar amount available a few years later. With two plans it’s easy, one student withdraws one, the other student withdraws the other; No complicated math involved.

  • 19 Pablito // Apr 10, 2008 at 12:17 pm

    DigiGrl: Even under the family plan (I’m with TD Asset Management also as e-Series funds), each child has a separate account within the same RESP plan. I believe this is standard and may be mandated by the CRA (not sure though). Anyway, it gives you the best of both worlds really as it addresses Traciatim’s “fairness” concern, but allows you to transfer any amount between the accounts without problems should that be necessary later… say when one child goes to college while the other studies to be a doctor. :)

  • 20 romney // Jun 10, 2008 at 7:25 am

    1. Is my child eligible to withdraw when attending uni part- time, and working?
    2. Do recent changes mean that he can withdraw past age 25, if account opened at age 10?
    thanks

  • 21 Canadian Capitalist // Jun 10, 2008 at 10:59 am

    romney:

    1. Check out the FAQ page on the HRDC website:

    http://www.hrsdc.gc.ca/en/hip/lld/cesg/publicsection/CESP/RESP_FAQs.shtml#q19

    2. I think so, yes.

  • 22 Robert // Jul 1, 2008 at 11:44 pm

    Can someone help me here? I have a friend who opened up an RESP, here in Ontario, for his daughter about 5 years ago. The daughter is now 18 years old and will be attending the University of British Columbia this September.

    My friend moved down to California 3 years ago for work and he and his daughter and now both US residents. He still kept the RESP plan here in Ontario. He has recently attempted to redeem his RESP money however he is running into problems. Apparently the grant portion has to be returned to the Government of Canada. He is getting a few different reasons:

    1) The subscriber (the father)’s mailing address is in the States, that’s why his daughter is not eligible for the grant money.
    2) At the time of enrollment (May 2008), the daugther was living in the States (attending her last year of High School), and because she wasn’t residing in Canada at that time, the grant money is being denied.

    Question: Which one is it, and is there written documentation on the internet? If the second one is true, if the daughter is physically living on campus at UBC (ie. she would be residing in Canada) at the time of her enrollment of her second year (ie. she would be enrolling for her second year while she is on campus at the end of her first year, and still in Canada), would she qualify for the grant money then? So, maybe it’s best not to redeem the RESP money until right before her second year of school?

    A response ASAP would be greatly appreciated.
    Robert

  • 23 Canadian Capitalist // Jul 2, 2008 at 6:51 pm

    Robert: Call HRDC and/or the RESP promoter. It’s hard to say what the problem is. The CES Grants are only for Canadian residents, so if your friend had made contributions in the last 3 years, that could be a problem. Also, check the HRDC page for tons of information on RESP rules:

    http://www.hrsdc.gc.ca/en/learning/education_savings/index.shtml

  • 24 Quick Tip: Catch up on RESP Contributions // Jul 2, 2008 at 10:59 pm

    [...] Globe and Mail columnist Rob Carrick has written a couple of articles on RESP catch-up contributions available here and here. Note that the CESG rules are slightly different now. [...]

  • 25 Oleg Tchetchel // Nov 11, 2008 at 5:23 pm

    Interested in transferring my existing RESP into a self-directed RESP that enables me to hold it in precious metal certificates (not precious mutual funds), preferably Platinum, but could be Silver and Gold too. Can you help ?

    Oleg Tchetchel
    Burlington, ON
    fan@cogeco.ca

  • 26 Michael // Apr 1, 2009 at 2:32 pm

    Albertans need to ensure that their RESP provider is able to get them the Centennial Savings grant of $500/child. In this regard, avoid Scotia iTrade (formerly eTrade) as it has made it clear to me that I’m out of luck with the RESP I have with it.

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