Registered Education Savings Plan (RESP)

Registered Education Savings Plan (RESP) accounts are used to save for and fund education expenses. Their advantages are that investment earnings are tax-free as long as they remain in the plan, and education grants for beneficiaries age 17 and under are deposited by the federal government, and some provincial governments (free money!).

  • Subscribers and contributions:

    The subscriber refers to the person (or joint spouses) making the RESP contributions. When it comes to Family RESP plans, the subscribers may be parents, grandparents, or siblings of children, including adopted children. When it comes to Individual RESP plans, there are no restrictions regarding who can act as an original subscriber. You and your spouse (or common-law partner) may also be joint subscribers under a single RESP. However, the subscriber must be a person, as opposed to a trust or a corporation.

    The MoneyReady App will refer to the subscriber as the `Owner' of the RESP in the account list.

    Contributions can be made to the RESP for up to 31 years after the opening of the account, and they can add up to \$50,000 in contributions per beneficiary. For a Family RESP, the beneficiary of the contribution must be specified and can only be made until that beneficiary turns 31 years old. The TIME MACHINE will automatically add the Canada Education Savings Grant (CESG), up to current limits (currently 20\% of contributions from \$500 up to \$2,500 per year for children 17 and under, up to a lifetime limit of \$7,200). The maximum CESG that can be granted each year is \$500. For contributions less than \$2,500 the unused CESG grants accumulate until the end of the year in which a child turns 17 up to a maximum annual CESG grant of \$1,000. For contributions greater than \$2,500 a portion of the carry forward pool gets used up. The ability to use up carry forward room is limited to 20\% of the first \$5,000 of RESP contribution made in any given year. The app will also automatically add the Québec Education Savings Incentive (QESI) if the RESP was set to be resident in Québec. This will increase the grants paid by 50\%. We do not currently consider other provincial incentives, or the income-tested additional incentives for low-income families. There is an additional column in the Excel table outputs of the TIME MACHINE that shows the total grants paid in any year. The limits to contributions and grants are not currently indexed by the TIME MACHINE as they have not been by the Government.

    You can set up AUTOMATIC SAVINGS to the RESP, specifying the beneficiary. This will force the contributions in the TIME MACHINE which will make sure contribution limits and deadlines are followed. If you specified the account's subscriber as `Other', contributions to the account can only be made through this automatic SAVINGS feature, with `Other' entered as the contributor. The RESP can also (or instead) be funded using your Deposit PRIORITIES (described later). You will see the RESP in your list of Deposit PRIORITIES for any year where the RESP is open to deposit. The beneficiary will not be specified in that case, so for a Family RESP, the deposits will be assigned to beneficiaries in decreasing order of age, first maximizing the grants obtained for that year. This approach maximizes the total grants that can be obtained over the life of the RESP since eligibility for the grants ends after age 17.

    RESP contributions are not tax deductible, and the subscriber can withdraw their contributions at any time with no tax consequences.

  • Beneficiaries and withdrawals:

    A beneficiary refers to a person who will be making withdrawals from the RESP to pay for attendance at a qualifying education program. The withdrawals are called Educational Assistance Payments (EAP) and include grants and growth in the RESP account. EAP withdrawals are added to the taxable income of the student beneficiaries (who likely have a low tax rate). A beneficiary attending a qualifying education program can also make withdrawals of the subscriber's original contributions tax free. These are called Post-Secondary Education withdrawals (PSE).

    You may assign your children, your spouse, yourself, or anyone else (specified as `Other') as the lone beneficiary of an Individual RESP. They can be any age. A Family RESP can have multiple beneficiaries, and all beneficiaries must be connected by blood or adoption to the subscriber. Additionally, Family RESP beneficiaries must be under age 21 when named to the plan or must have been beneficiaries under another family RESP immediately before being added to a family RESP.

    The TIME MACHINE will make withdrawals from an opened RESP to pay for Education EXPENSES that have been linked to that account and beneficiary. The available EAP to the beneficiary will first be calculated and paid to that beneficiary, and if a DEPENDENT, will be included in their taxable income. In a Family RESP the EAP comes from all the grants and investment gains that are shared in the plan, but only within the limits of the \$7,200 CESG per beneficiary (and an additional \$3,600 in Québec). If additional funds are required after paying the EAP, the EXPENSE will be paid from the contributions. In a Family RESP, all of the contributions can be used by any student beneficiary. If even more funds are required because the RESP is depleted, it will add that amount to your spending, and you will see that spending in the TIME MACHINE reports.

    You can also set up AUTOMATIC withdrawals from the RESP. In that case, the specified beneficiary is ignored, and only original contributions are withdrawn with no tax consequence. Remember that you must enter education EXPENSES to have the EAP withdrawn.

  • Adding an RESP account:

    When you Add an account you can select Individual RESP or Family RESP. An Individual RESP can only have one beneficiary, but the same beneficiary can be the beneficiary of more than one RESP (Individual or Family), although the \$50,000 in contributions per beneficiary applies over all those accounts. The Money Ready App allows multiple accounts for a beneficiary but if that beneficiary is `Other' (because it is not in your list of DEPENDENTS), it cannot enforce the contribution limit. This is not a problem if the multiple Others are all different people, but if not, you can make `Other' a DEPENDENT and make sure both the `Start of dependence' and `End of dependence' fields are clear so they will not affect your taxes.

    After specifying the account's subscriber and the date it was or will be opened you will be shown a list of potential beneficiaries. You can check the one(s) that apply. For each checked beneficiary the form requires you to enter any CESG carry forward room, the cumulative contributions for this beneficiary in this account, the cumulative CESG grants received (add QESI grants if applicable) for this beneficiary in this account, the cumulative EAP withdrawn for this beneficiary from this account, and the cumulative contributions withdrawn from this account. The last 2 will only apply if there have been withdrawals from the account already. You should update this form any time a deposit or withdrawal is made by editing the account. For an `Other' beneficiary, please also specify their birthdate.

    You can change the designation of the account from Individual RESP to a Family RESP (and vice-versa). If you previously entered an RESP before the MoneyReady App supported Family RESPs (2023-10-10), it will be set as an Individual RESP with the beneficiary that you had set. RESP accounts when first imported from Wealthica will also be set to be Individual RESP. If you need to, you can change the designation and add all the beneficiaries that apply along with their information on previous contributions and withdrawals. If you had previously entered multiple Individual RESP accounts instead of a single Family RESP you should now combine the information from all these accounts into a single Family RESP account and delete the Individual RESP accounts that do not apply. Make sure you update any education EXPENSEs and AUTOMATIC SAVINGS/WITHDRAWALS previously linked to those accounts to link instead to the Family RESP instead first.

  • Closing an RESP account:

    An RESP account must be closed after 35 years (as mentioned earlier, contributions must stop 4 years prior to that). If any balance remains, all contributions are refunded to the subscriber. Grants are returned to the government, and any growth is added to your RRSPs, if you have room for it. Otherwise, it is added to your taxable income and additionally, a tax penalty of 20\%, or 12\% for residents of Qu\'ebec, is added to your taxes. The TIME MACHINE will issue a Warning if the account is closed, specifying the amounts transferred to RRSPs, added to your taxable income, and the tax penalty.

    For the TIME MACHINE you can make sure to add educational expenses to withdraw funds from RESPs so that no balance remains. But what if a beneficiary does not got to university as planned? This is a risk RESPs subscribers must take. It is mitigated by several factors:

    • - The account does have to be closed for 35 years after opening, and therefore any beneficiary can take advantage of it to further their education as long as it is not closed.
    • - Family RESPs allow any of its beneficiaries to share the funds in the RESP (up to a limit for EAPs). So, if one does not pursue a higher education, another can use those funds for theirs.
    • - Even when there is no hope a beneficiary will spend the funds in time, you can get your principal back, with interest (tax-free as long as you have RRSP room).