RESP basics: A new parent’s guide

Did you know?

• At Université Laval (This hyperlink will open in a new tab), estimates show that in Quebec, where post-secondary education is among the most affordable in Canada, full-time undergraduate students need between $21,986 and $26,226 a year to cover tuition, housing, groceries, health care and day-to-day living costs.
• In 2023-2024, Quebec graduates who completed their studies with student debt owed an average of $15,997 at the undergraduate level, $19,028 at the master’s level and $28,350 at the doctoral level (This hyperlink will open in a new tab).

What is an RESP?

A Registered Education Savings Plan (RESP) helps families save for a child's post-secondary education.

Here's how it works: you contribute money to an RESP and both the federal and provincial governments can add grants to boost your savings. Like an RRSP, investments held in the plan grow tax-sheltered until the funds are withdrawn.

When your child enrols in an eligible post-secondary program, the money you've accumulated can help cover the cost of their education.

RESP or traditional savings account?

RESPs have become a go-to education savings tool for many families. Beyond helping you save for your child's education, they offer benefits that you simply won't get with a traditional savings account.

1. Government grants

For many parents, this is one of the biggest advantages of an RESP.

Government grants are added to the money you contribute, increasing the amount invested and growing over time. That means your education savings can grow more quickly.

2. Tax-sheltered growth

Investments held in an RESP can generate income over time.

As long as the money remains in the plan, that income accumulates on a tax-sheltered basis, helping your savings grow.

3. Tax advantages when funds are withdrawn

The contributions you make to an RESP can be withdrawn tax-free. Government grants and accumulated investment income, meanwhile, are paid to the student as Educational Assistance Payments (EAPs). Because students typically have little income while pursuing their studies, the tax owing is often minimal.

What about a TFSA?

The right choice depends on what you're saving for. If your main goal is to set money aside for your child's education, an RESP offers a key advantage: government grants.

That said, a TFSA may also fit into your financial plan if you're looking for greater flexibility to support other family projects. Your money can grow tax-free, and you can access it whenever you need it. The trade-off? Unlike an RESP, a TFSA doesn't qualify for government education savings grants.

When should you open an RESP?

You don't have to wait until your child is in daycare or school to get started. In fact, you can open an RESP as early as your baby's first few months.

Starting sooner gives your savings more time to grow, as investment earnings accumulate year after year.

Feeling the pressure of new expenses and reduced income during parental leave? Don't worry about making large contributions from the outset. Even modest amounts contributed regularly can make a difference over time.

That said, education savings are only one part of the picture. Your RESP contributions shouldn't take priority over day-to-day expenses, your emergency fund or your family's overall financial well-being.

Who should open the RESP?

The subscriber is the person who opens and manages the RESP. Their responsibilities include:

• Contributing to the plan
• Choosing investments
• Authorizing withdrawals once the child starts post-secondary education

The subscriber doesn’t have to be the child’s parent. Since this person will be responsible for decisions related to the plan for years to come, it's worth choosing someone who understands the role and is prepared to manage it over the long term.

Choosing the right setup for your family

Single parent?

In most cases, the decision is simple: you can open the RESP and manage it as the sole subscriber.

Parenting as a couple?

You can open the RESP jointly and manage it together or choose one person to be the subscriber.

Before deciding, remember that if you separate in the future, a joint RESP may not be as easy to deal with as a regular bank account.

Part of a blended family?

It's worth deciding early on who will contribute to the RESP, who will be responsible for managing it and how decisions will be handled over the years.

Understanding the different types of RESPs

Every RESP is designed with the same purpose in mind: helping pay for a child's post-secondary education. What sets them apart is the number of beneficiaries they can cover and the flexibility they provide.

As you decide which type is right for your family, ask yourself:

• Are you saving for one child or more than one?
• Would you like the option of sharing the savings among multiple children?
• How much flexibility do you want the plan to offer?

Individual RESP

An individual RESP is designed for one beneficiary.

It may be the right option if:

• You're saving for one particular child
• Your child doesn't have any siblings
• You’d prefer to keep their education savings separate from those of their brothers and sisters

Another benefit is that the subscriber doesn’t have to be the child’s parent. A grandparent, for example, can open an individual RESP for their grandchild.

Family RESP

A family RESP can include multiple beneficiaries who are related to the subscriber, such as children or grandchildren.

A popular choice for families with more than one child, it brings education savings together in a single plan and offers the flexibility to allocate funds based on each child's needs. That added flexibility can be especially helpful when children’s post-secondary plans differ.

Group RESP

A group RESP, sometimes referred to as a “scholarship plan”, is offered by certain specialized providers. Under this type of plan, participants' contributions are pooled and managed according to the provider's rules.

These plans can come with stricter contribution requirements, as well as fees or penalties if you stop making contributions. Before signing up, take the time to understand:

• Applicable fees
• How contributions and withdrawals work
• What happens if your child changes their educational plans or decides not to pursue post-secondary studies

Since the rules and conditions can vary from one provider to another, it's important to review the documentation carefully and ask any questions you may have before making a decision.

Key takeaway: The best RESP isn't always the one with the highest projected return. It’s the one that aligns with your family’s needs, priorities and preferred way of saving for the future.

How much should you put into an RESP?

The best contribution amount is one that fits comfortably within your budget and still leaves room for life's unexpected expenses.

You don't need to contribute a large sum to get started. In fact, regular contributions often make a bigger difference over time than occasional lump-sum deposits.

A few ways to contribute include:

• Setting up a fixed monthly contribution
• Putting aside part of your benefits or tax refund
• Making an extra contribution when you have additional room in your budget

There's no minimum annual contribution requirement, but the lifetime contribution limit is $50,000 per child.

Government grants that help your savings grow

On the first $2,500 you contribute each year, government grants can add approximately 30% to your savings.

The main programs are:

• Canada Education Savings Grant (CESG) (This hyperlink will open in a new tab): The federal government contributes 20% of the first $2,500 contributed each year, to a lifetime maximum of $7,200 per child.
• Quebec Education Savings Incentive (QESI) (This hyperlink will open in a new tab): If you live in Quebec, you may be eligible for an additional grant worth 10% of the first $2,500 contributed annually, up to a lifetime maximum of $3,600 per child.
• Canada Learning Bond (CLB) (This hyperlink will open in a new tab): Some lower-income families may qualify for up to $500 in the first year they're eligible, plus up to $100 annually in subsequent years, even without making RESP contributions.

Put another way, a $1,000 annual contribution could earn roughly $300 in government grants, before any investment growth is factored in.

Keep in mind that eligibility requirements, grant amounts and contribution limits can change. Before opening an RESP, confirm the latest details with your financial institution or on the Government of Canada and Government of Quebec websites.

What if you contributed $2,500 a year?

* This illustration is based on an assumed annual return of 5% and is provided for reference purposes only. It reflects only the basic grants available to Quebec families. Families with low or moderate incomes may be eligible for additional amounts through the CESG and QESI.

Where should you open your RESP?

An RESP can be opened through an insurer, a financial institution such as a bank or credit union, a brokerage firm or an investment platform. The right option depends largely on the type of support you want and your comfort level when it comes to managing investments.

Through an insurer

If you'd like personalized support, an insurer may be worth considering. A financial security advisor can help you look at your RESP as part of your family's overall financial picture, including savings, insurance, or estate planning needs. Depending on the products available, you may also have access to additional guarantees or coverage options.

Through a bank or credit union

For many families, this is the most familiar approach. You'll be able to choose from the investment options offered by the institution, with services and features that vary depending on where you open the plan.

Through a broker or investment platform

These solutions are often a good fit for people who prefer a hands-on approach to managing their investments and want more control over their decisions. They typically offer access to a broad selection of investment options.

Through a specialized provider

Some financial institutions focus exclusively on RESPs. If you're considering this option, be sure you understand the fees, contribution requirements and any conditions that apply before making your decision.

Choosing investments for your RESP?

Opening an RESP is only part of the process. You'll also need to decide how your savings will be invested.

The options available will vary by institution, but may include guaranteed investments, mutual funds, segregated funds or diversified portfolios.

• Guaranteed investments, such as GICs, are designed with stability in mind. They may be worth considering if you'd rather keep fluctuations in your savings to a minimum. As post-secondary education gets closer, many parents choose a more conservative approach to help preserve the savings they've built over time.
• Mutual funds and diversified portfolios typically offer stronger long-term growth potential, but they can also experience greater ups and downs. The amount of time you have before your child starts post-secondary education is an important factor in shaping your investment strategy.

Ultimately, the best option will depend on both your time horizon and your comfort level with risk.

Common RESP pitfalls

• Waiting for the “right moment”. Getting started doesn't require a large investment. Even small, regular contributions can benefit from government grants and years of growth.
• Opening a plan before understanding the details. Take the time to review the fees, contribution requirements and withdrawal rules before choosing an RESP.
• Choosing investments that don't fit your needs. Your investment strategy should align with your time horizon and your comfort level with risk. If you're unsure where to start, a financial security advisor can help you choose an approach that's right for you.
• Forgetting to update your information. A change of address or incomplete beneficiary information can complicate certain administrative processes, particularly those related to government grants.
• Underestimating the overall cost of education by focusing only on tuition fees.

What if my child doesn't pursue post-secondary studies?

Although an RESP is designed to help finance post-secondary education, that doesn't mean the money is lost if your child chooses a different path. Only the government grants must be repaid, but you keep the investment earnings that have accumulated.

Depending on the circumstances, you may be able to:

• Withdraw your contributions tax-free
• Designate another eligible beneficiary
• In certain cases, transfer part of the accumulated investment income to an RRSP
• Give the funds to your child so they can put them into a FHSA and start saving for their first home

The options available to you will depend on the type of RESP you have and your individual situation. Before withdrawing funds or closing the plan, take the time to understand which options apply to you.

Questions to ask before opening an RESP

• Am I saving for one child or more than one?
• What amount can I realistically contribute on a regular basis?
• Do I want to manage my investments myself, or would I benefit from professional guidance?
• What level of investment risk am I comfortable with?
• Would I like to make education savings part of my overall financial plan?
• Will the provider take care of applying for government grants?
• Do the fees, contribution requirements and withdrawal terms meet my needs?
• Is protecting my contributions in the event of death important to me?

Start small, think long term

Even a modest start can pay off when you give your savings one of its greatest advantages: time.

As your child grows and your family situation evolves, your savings strategy can evolve too. And if you’d like support along the way, a financial security advisor can help ensure your plan continues to meet your needs at every stage.