RESP in Canada: The Ultimate Guide on How RESPs Work

This post on RESP in Canada will go over how RESPs work, where you can start an RESP for your child, and how to maximize your RESP contribution and CESG grant return. According to a recent poll by Scotiabank, Canadians parents with children age 0 to 24 at home are planning on using their RESP savings (59%) and personal savings (48%) to finance their children’s tuition expenses, while only 30% plan to rely on scholarships, government loans (22%), grants (18%), and bank loans (13%). RESPs are on parents’ minds.

RESP in Canada The Ultimate Guide

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What is an RESP in Canada?

The RESP is one of my favourite Canadian registered investment accounts (okay, who am I kidding, I like them all, especially the TFSA).

It is designed so that money can be saved towards a child’s post-secondary education.

What is a Registered Education Savings Plan (RESP)?

The RESP is short for Registered Education Savings Plan.

The RESP is a government initiative to encourage families to save money for their children for post-secondary education, is essentially the meaning of RESP.

How Does RESP Work?

The money that you put into your RESP plan grows tax free. 

On top of that, the government matches your RESP contribution with a 20% match from the Canada Education Savings Grant (CESG). 

So if you contributed $2500 into your child’s RESP, you would get $500 from the government.

Just like with other registered products from the government of Canada (like the TFSA or the RRSP), the RESP is like a ‘basket’ where you can hold and invest in what you please.  For example, you can hold stocks, dividend paying stocks, ETFs, high interest savings accounts, GIC’s, or mutual funds.

In simple terms, an RESP is similar to an RRSP where it is a BASKET of investments (you can hold the RESP in various things like GIC’s, mutual funds, equities etc.).

The difference is that the money that grows inside this basket is meant for your child’s post secondary education and it is tax sheltered. The investments and money within the RESP are not subject to tax.

Money invested within an RESP grows tax free (that means no capital gains tax, no interest income tax, no tax period while it is in the RESP!).

Who can contribute to an RESP?

Anyone can contribute and open up an Individual RESP for a child if they have access to the child’s social insurance number. However, only a parent or grandparent can open up a Family RESP for a child. An RESP has a subscriber and a beneficiary.

With the RESP, the parent (they name the funding person the “subscriber”) can contribute money for the child (they name the child the “beneficiary”).

Is an RESP tax deductible?

The contributions toward the RESP are made with after tax income.  The contributions cannot be deducted from your income tax.

The RESP is different from the Canada Child Benefit and the wonderful monthly Child Tax Benefit payments.

We opened up an RESP for our first born when he was around 2 months old. It was part of our self-imposed financial checklist for new parents.

Types of RESP available

There are three types of RESP available (Individual, Family, and Group RESP).

  • Individual RESP– With an individual RESP, anyone can be a subscriber and contribute to an RESP for a child.
  • Family RESP– With the family RESP, only parents or grandparents can open up a Family RESP. Siblings (by blood or adoption) can share a Family RESP and the child has to be under the age of 21 when you open up a Family RESP.

Related: Individual vs Family RESP: Which One is Better?

  • Group RESP– In a Group RESP, your contributions are mixed with other people’s contribution.  How much each child in the group plan gets depends on how much money is in the group account.  Each child is tracked by their birthday or birth year (and the money for your child is pooled with other kids in that birth year). There are more rules with a Group RESP (for example, you will face high fees if you cancel).

Related: Group, Pooled, and Scholarship Trust RESP and Why You Should Avoid Them

the RESP Grant (CESG)

The RESP Grant is also known as the Canada Education Savings Grant, or CESG.

The CESG matches 20% of your contribution, up to a total RESP maximum grant of $500 per year, when you contribute at least $2500 (however, with the enhanced CESG (Canada Education Savings Grant), depending on the family income the CESG amount differs– if you have lower family income your CESG is higher).

What’s the RESP maximum grant?

The RESP maximum grant or the lifetime maximum CESG you can receive per child is $7200.

The RESP government contribution is $500 per year up to a total of $7200 (this is approximately 14 years of $500 payments and a $200 payment in the last year)

When you think about contributing $2500 a year, and a modest estimated 5-6% of compound interest over time (in this case, over 17 years of time, which is enough time to weather the highs and lows of moody and inconsistent Mr. Market) you end up with over $80,000 for your child’s post-secondary education.  

How amazing is that?  If you don’t believe me, check out the Get Smarter About Money’s RESP Savings Calculator.

In addition, there’s something called the Canada Learning Bond (CLB), if your household income is low you may qualify for this additional grant. The government will give you $500 just for opening an RESP account. In addition, yearly, your child get $100 up to age 18, up to a maximum limit of $2,000.

RESP Contribution Limit

What is the maximum RESP contribution limit?

There is a maximum RESP contribution limit of $50,000 (which does not include the $7200 CESG grant amount), and can keep contributing up to the age of 17 for your child.

The money is withdrawn tax-free for a qualifying education program, and called “Educational Assistance Payments” or EAP.

It doesn’t matter how many RESP accounts you have for your child (just like it doesn’t matter how many TFSA accounts you have), but it is important to keep track of your contributions to the RESP accounts so that you don’t go over the RESP maximimum contribution of $50,000.

What is an RESP

RESP Contributions Strategies

I see that there are a few ways where you can optimize the RESP contributions.

Contribute $2500/year from Year one

One common way to invest in an RESP is to just contribute a straight up $2500 from the beginning and keep going until we reach $50,000 in maximum RESP contribution. Of course, there are a lot of costs already in baby’s first year, and coming up with $2500 can be difficult.

However, because the RESP is similar to a TFSA and an RRSP in that it is tax sheltered, meaning anything that accumulates inside the RESP is exempt from taxes, we want to take advantage of that.

Although when the beneficiary withdraws from the RESP, the EAP will be taxable, but as a post-secondary student, the beneficiary’s income will be very low, therefore the tax hit won’t be bad.  

It is similar to an RRSP, the RRSP is tax sheltered and when you withdraw it your income should be low (retirement) so that the tax hit won’t be bad.

Contribute $50,000 All at Once

Another way is to contribute $50,000 straight up in the RESP.  You would take advantage of a strong tax shelter for many years, but you won’t have the CESG payments.

This would allow you to have the $500 for the first year but because the CESG is paid on an annual basis, you wouldn’t be able to get the CESG in subsequent years.  

Meaning no free money from the government, so this RESP contribution is not ideal and not an optimized option.

Also, who has $50,000 laying around right off the bat for their newborn for tuition, am I right?

Front Load the RESP in Year one

Finally the last option is to front load the RESP contributions like Strategy B (because we want to take advantage of the tax shelter and compound interest, and all other great things that happen when you have a long investment horizon, like 18 years) but with the CESG in mind.  

To get the maximum CESG grant of $7200 you would need a time horizon of 14.4 years.  

This would mean contributing:

  • $16,500 in the first year which is a nice $500 in CESG given by the government in year one
  • $2500 annually from year 2 to 14 (for 13 years) which equals a total of $6500 in CESG
  • $1000 in the last year (14th year) which represents the maximum contribution limit of $50,000, so you would only get $200 in CESG grant for that year

A couple weeks after our first child was born we opened up an RESP for him.

Apparently many parents bring their baby in at around 2 months to open up an RESP.  This means many parents are getting a head start with investing for their children’s education, which is great to hear!

We will use a 100% equities option initially as the time horizon is long (we have 18 years after all) and as we approach year 18 we will convert our RESP asset asset allocation to something that will preserve capital and decrease risk.  

This approach is similar to investing in an RRSP when one approaches retirement and needs capital preservation.  

A lot of people assume that contributing $2500 a year maximizes the plan. It doesn’t.

Using the Ontario Securities Commission RESP calculator, by age 10, the portfolio value of our RESP should be just under $70,000 provided that there is an assumption of 6% annualized returns.  

Of course it might not look like this depending on when the recession will hit and whether we decide to invest the full $16,500 in year zero or one.

How To Maximize The RESP Grant

How much do you contribute in order to maximize the RESP grant?

In summary, in order to maximize the RESP grant limit, you will need to contribute the maximum each year, which is $2500 per year, and then $500 will be deposited into your RESP account right away via the RESP grant.

To maximize the RESP grant, you could invest $2500 from year 1 to 13 and then in the last year (year 14) you would invest $1000 to get the final $200 of the $7200 total.

This would maximize the CESG without over contributing, but you might want to consider front loading the RESP if you have the funds to do it in order to maximize the tax shelter. We did this with our children’s Family RESP.

Some online brokerages in Canada even offer cash back or free trades when you open up an RESP with them.

WIthdrawal from the RESP (THe RUles)

When the CESG portion of the RESP is withdrawn from the RESP, this is called the Educational Assistance Payments, and it must be included as income in a T4A on your child’s tax return when it is withdrawn. The EAP can only be withdrawn by the Beneficiary.

The Subscriber contributed portion of the RESP are called the Post-Secondary Education Payments (PSE). The PSE payment portion is not taxable. The PSE can be withdrawn by either the Subscriber or the Beneficiary.

Not any post secondary education is eligible and you have to show proof of enrolment before being able to access the RESP money.

There is a list from the government of Canada about the post secondary education institutions that qualify and are recognized for RESP withdrawals, or the Educational Assistance Payments.

For a full time student, there is a $5000 limit on EAP withdrawals for the first 13 weeks of education. If the student (beneficiary) is doing part-time schooling, that limit is $2500.

There is not maximum amount of PSE that can be withdrawn, and after the 13 weeks are up, you could withdraw more of the EAP contributions.

What If Your Child Doesn’t go to Post-Secondary?

What happens if an RESP is not used? 

Well, if they decide not to go to post secondary school, don’t fret.

There are a five options available to you if your child doesn’t go to post secondary education.

The RESP can be left open.  The RESP can be left open for 36 years and they can change their mind to go to school for that time. 

Replace the beneficiary. If you have an individual RESP you can possibly name a different benificiary. If you have a Family RESP plan, you can use the money for your other child in the Family RESP plan. This is one of the major benefits of the Family RESP plan.

The RESP can be converted to your RRSP.  You can transfer up to $50,000 of your child’s RESP to your RRSP if the RESP has been open for 10 years and you have room in your RRSP for this contribution.  More details here on the government of Canada website.

Close the RESP.  You can also close the RESP.  The CESG grants will be returned back to the government but your contributions are yours to keep (and you don’t have to pay taxes on your contributions) and you can transfer it to your investment account (provided that the RESP has been open for 10 years and the beneficiaries of the RESP are over the age of 21 and not attending post secondary education).

Converting the RESP to a RDSP. RDSP stands for Registered Disability Savings Plan.  To convert the RESP to an RDSP, the beneficiary will have to be under 60 years of age and also eligible for the Disability Tax Credit. However, thee remaining Canada Education Savings Grant, Canada Learning Bond and provincial incentives must be repaid.

Okay, now you know everything you need to know about an RESP, here’s how to open up an RESP.

Available RESP Accounts

You can open up an RESP account pretty much anywhere that has RESPs. Some popular RESP accounts are RESPs with Questrade, Qtrade, Wealthsimple, RBC, and TD (for the TD e-series).

  • RESP Questrade: You could do a self directed Questrade RESP or have it ‘robo advisor’ managed by the Questwealth portfolio. The Questwealth portfolios have the lowest fees for a robo advisor in Canada (Only 0.25% on assets under $100,000 and ETF fees are 0.11%-0.23%). So in total, under 0.50% in fees. A self directed Questrade RESP would be very low cost since ETFs are essentially commission free. Even then, each trade is $4.95, so it’s very low cost DIY investing. You can sign up here for $50 in free trades (not including ETF buys since they are free) when you open up an account with Questrade. One thing to note if you are in BC, is that Questrade does not support the BCTESG grant when your child turns 6 ($1200 of free money)

Related: Best Robo-Advisor in Canada: A Chart Comparison

  • RESP Wealthsimple: It takes 5 minutes to open up an RESP online and there are no minimum investments. You could even just deposit $1 (though that would be a waste since you’ll just get back $0.20 in CESG grants, lol). It costs 0.5% in annual fees plus the fees of the ETFs that Wealthsimple invests in. So around 0.75 to 1% in fees.
  • TD RESP: The TD e-series composition as an RESP is popular. This is the majority of our kids’ Family RESP. TD e-series funds track the market with low cost management expense ratios of 0.33% to 0.5%.  There are multiple TD e-series options, including US index and the Canadian index. Under a TD e-series, you can dollar cost average and not have to pay fees to buy and sell since they are funds and not ETFs. You can read all about TD e-series vs ETFs here.
  • Qtrade RESP: Qtrade has been ranked number one for online brokerage ratings in Canada in customer service, and they also have zero commissions (free) to buy and SELL ETFs. Here’s my review of Qtrade.
  • RBC RESP: You could open up an RESP with RBC Direct Investing. It is $9.95 per trade (and $6.95 per trade if you have more than 150 trades in a quarter). If you have more than $15,000 in assets within RBC, you’ll save on registered RESP fees too.
  • Justwealth RESP: Justwealth is an independent (e.g. not owned by a bank) robo advisor. It is the only robo advisor in Canada to provide a ‘target date RESP’. For example, you indicate when your child will be going to post secondary education and Justwealth will have a perfectly asset allocated investment portfolio set up for you. Just like with retirement, as you get closer to the time when you need the money, you will want to be more risk averse. A promotion for readers is an up to $500 bonus for depositing assets with Justwealth for over 6 months.

Here’s a comparison between Justwealth vs Wealthsimple RESP if you’re interested.

Some RESP providers also charge fees because they are ‘registered’ accounts. Make sure you are aware of all the fees before you sign up.

How to Open Up an RESP

Here is what to bring when you set up an appointment with an RESP provider (or what documents to upload if you are applying for an RESP account online).

In your sleep deprived state, it might be helpful to make sure you have what you need before your appointment to set up an RESP.  Your RESP grant provider will fill out the RESP grant form for you and send it off for processing.

Here are the things you need to set up an RESP for your child in Canada:

  • Your own social insurance card or number
  • Your child’s social insurance card
  • Your child’s birth certificate or permanent resident card

How Long Does it Take for the CESG Money to Get Deposited?

When I signed up for the RESP I was worried that the CESG $500 would take half a year to get deposited.  I was wrong, thankfully.  For us it was actually very quick, just took a few weeks and we saw the $500 CESG money get deposited into our account.  

The CESG grant is great and really helps bulk up the RESP and give an instant 20% return!

After you deposit your money, it takes at least 3-4 weeks for the RESP grant money (or CESG) to be deposited into your account. 

For us, it was about 5-8 weeks after we deposited our contribution to see the CESG, and this has been consistent for the past few years that we have contributed to the RESP for our child.

We contributed January 1 and received the RESP Grant in our Family Account on February 26, so about 8 weeks. This is what the CESG deposit looks like in your RESP account.

RESP in Canada Summary

There we have it, hope that helps, a review of what the RESP is, what the amazing RESP grant is, and how to create an RESP grant Canada strategy that works for you. This is to not over contribute and to get the maximum CESG grant available from the government of Canada. It is a skill to manage your money in Canada but signing up for the RESP is a no brainer.

Again, I absolutely love the RESP and what it can do, the 20% RESP government contribution for the CESG or the “RESP Grant” is very generous and really encourages families to save for post secondary education for their child if they can. 

The max RESP contribution is $50,000 per child.

Although you can’t force your kids to go to post secondary education, I think this is a great way to encourage them to if that is part of your parenting plan, to provide and save up for your child’s post secondary education in the form of RESP contributions and CESG grants. It’s a little way to fight back against the Motherhood Penalty, by getting free money from the government towards your child’s future education.

Hopefully you found this RESP in Canada guide helpful. For more detailed information, this can be found on the government of Canada website.

If you live in BC, don’t forget to take a mental note and apply for the BC Education and Training Savings Grant of $1200 when your child turns 6 years old.

You may also be interested in:

Where are you in your RESP journey (starting out, in the middle, or withdrawing from the RESP)?

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12 thoughts on “RESP in Canada: The Ultimate Guide on How RESPs Work”

  1. Thanks for sharing, Gym! I know we use the RESP for our kids. Where else can you get an extra 20% for each dollar up to the $2,500 per year? It is great. I am also happy to see that “Apparently many parents bring their baby in at around 2 months to open up an RESP.” As I think if you can you should definitley use this option for your kids.

    Education is key and will be even more important in the future. Therefore, it is important to do your best to help your kids get ahead. And, the RESP will help you do just that!

  2. Thank you for such an in-depth, yet straightforward guide on RESP. My o my, it is now fully understood (such simple, no rhetoric, straightforward explanations)?

  3. Our baby was born in February 2020. We started her RESP right away and deposited $2,500. Now that it’s 2021, do we have to wait 12 months to deposit the amount for year 2, or does it go by calendar year?

  4. Hi, I must say this article is so detailed as I wasn’t even aware of the some things you mentioned before now. Thank you so much.

    I have a few questions;
    – If I open two individual accounts for two kids, will each account get the CESG of $500 if I am able to save up to 2,500 for each account?

    – Will this also be applicable if we open a family account for two kids? I mean if I save 5,000 per year for two kids, will I get $1000 CESG?

    – What is the maximum contribution for family account, same $50,000?

    • @EMJ- You’re welcome!

      – If I open two individual accounts for two kids, will each account get the CESG of $500 if I am able to save up to 2,500 for each account?

      *** Yes!

      – Will this also be applicable if we open a family account for two kids? I mean if I save 5,000 per year for two kids, will I get $1000 CESG?

      *** Yes! We have a family account we get the $1000 (it was two separate $500 CESG grant deposits)

      – What is the maximum contribution for family account, same $50,000?

      *** For the family account maximum contribution will be $100,000 because $50,000 is per child

  5. Hello, thank you so much, by reading this post, I have learned a lot!

    I have been contributing $2500 to RESP since my son was born, now he is 3 years old. You mentioned about doing the front load RESP strategy with $16500 in year one to max the return. But I already missed out to contribute the $16500 in year one, so can I still do the front load strategy at year 4(this year) with the $16500 and then the rest of year by just contributing with the $2500?

    Thank you!

    • @Din- You’re welcome glad you found it useful.

      Congrats on being organized with your 3 year old’s RESP!
      No, the rest of the years you cannot contribute $2500 if you contribute $16500 now because that would be over contribution.
      Yes, you can contribute $16500 this year (Year 4), you’ll have contributed $24,000, and you’ll have $26,000 left. So you’ll have 10 years of $2500 after your $16500 contribution, and the last year is $400.

  6. Thanks for doing such a thorough article on RESP’s! It’s very helpful that you showed what options are available among different financial institutions.

    I’m in the process of opening 2 individual accounts for my nieces. Since my investments are at TD, I was intending to go with the E-series mutual funds, only to discover TD Direct only allows Family RESP’s, not individual RESP’s in self directed trading accounts. Individual RESP’s can be opened outside TD Direct trading, but only select Mutual Funds can be purchased. As a result, I’m leaning towards either opening accounts at Questrade or Qtrade . I plan to invest with ETF’s, and want to keep the fees to a minimum.

    What are your thoughts on holding U.S. assets in an RESP, given that there’s a 15% withholding tax. Would it make sense to hold Canadian assets only?

    • @Jackie- We have a family RESP. Low cost ETF is a great way to go. We have TD US Index Funds (e) in our RESP, and I think diversification outside of Canada is important and the 15% withholding tax is only for distributions anyway which would be a small amount anyway given the small size of the RESP account. Unfortunately as an aunt or uncle you are not able to open a Family RESP for your niece/ nephew.


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