The Best RESPs in Canada

Types of RESPs

RESPs in Canada come in various types, each with its own set of features and benefits. The primary types of RESPs include:

1. Individual RESP: This type of RESP is opened for one beneficiary, typically a single child. Contributions are made by one or multiple subscribers (usually parents or grandparents) on behalf of the beneficiary. The contributions grow tax-free until the beneficiary begins post-secondary education.

2. Family RESP: A Family RESP allows subscribers to name more than one beneficiary, often siblings, as beneficiaries. This flexibility is advantageous for families with multiple children, as contributions can be shared among the beneficiaries. When one beneficiary doesn’t pursue post-secondary education, the remaining beneficiaries can still access the funds.

3. Group RESP: Group RESPs are structured investment plans offered by financial institutions or scholarship plan dealers. In a Group RESP, contributions from subscribers are pooled and invested collectively. When a beneficiary enrolls in post-secondary education, they receive payments based on the plan’s performance and the number of units they hold. Group RESPs typically come with specific terms and conditions, including enrollment deadlines and penalties for early withdrawal.

4. Self-Directed RESP: A Self-Directed RESP provides subscribers with greater control over investment decisions. Unlike other types of RESPs, where investments are managed by a financial institution or plan provider, self-directed plans allow subscribers to choose and manage their own investments within the RESP account. This option is suitable for subscribers who are knowledgeable and comfortable with managing their investments.

Understanding the differences between these types of RESPs is essential for selecting the most suitable option based on your financial situation, investment preferences, and educational goals for the beneficiaries.

What is an RESP?

A Registered Education Savings Plan (RESP) is a tax-advantaged investment vehicle in Canada designed to help parents, guardians, or other contributors save for a child’s post-secondary education. Here’s a detailed breakdown of how RESPs work:

1. Tax Sheltered Savings: Contributions to an RESP are made with after-tax dollars, meaning there’s no immediate tax deduction. However, once inside the plan, the investment grows tax-free. This tax-sheltered growth allows your savings to compound more quickly over time.

2. Government Grants: One of the key benefits of RESPs is the availability of government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), for eligible beneficiaries. These grants can significantly boost your savings. For example, the CESG matches 20% of annual contributions up to a certain limit, while the CLB provides additional funds for low-income families.

3. Flexible Contribution Limits: While there’s no annual contribution limit for RESPs, there is a lifetime contribution limit per beneficiary. This limit is currently set at $50,000 per beneficiary. However, it’s important to note that contributions cannot be made to an RESP after the 31st year of the plan’s existence.

4. Withdrawals and Educational Assistance Payments (EAPs): When the beneficiary enrolls in a qualifying post-secondary education program, they can start receiving Educational Assistance Payments (EAPs) from the RESP to cover educational expenses. EAPs consist of both the investment growth and any government grants earned in the account. Since the beneficiary typically has lower income during their studies, they may pay little to no tax on these payments.

5. Flexible Beneficiary Options: RESPs offer flexibility in terms of beneficiary designation. While most plans are set up for one beneficiary, family RESPs allow for multiple beneficiaries, typically siblings, to share the benefits of the plan. If one beneficiary decides not to pursue post-secondary education, the funds can be transferred to another eligible beneficiary within the family plan.

Overall, RESPs are a powerful tool for saving for education expenses, providing tax advantages, government grants, and flexibility to help families achieve their educational goals.

Common RESPs fees?

RESPs may come with various fees, which can vary depending on the provider and the type of plan. Here are some common fees associated with RESPs:

1. Administration Fees: Most RESP providers charge administration fees to cover the costs of managing the plan. These fees can be charged annually or monthly and are often a percentage of the assets held in the RESP.

2. Sales Charges (Front-end Load): Some RESP providers may impose sales charges, also known as front-end loads, when you initially invest in the plan. These charges are deducted from your contributions and reduce the amount of money available for investment.

3. Management Expense Ratio (MER): The MER represents the total cost of managing the investments within the RESP. It includes fees for portfolio management, administration, and operating expenses. The MER is expressed as a percentage of the total assets under management and is deducted directly from the investment returns.

4. Trading Fees: If you have a self-directed RESP or a plan that allows you to choose specific investments, you may incur trading fees when buying or selling securities within the account. These fees can vary depending on the broker or financial institution you’re using.

5. Withdrawal Fees: Some RESP providers may charge fees when you make withdrawals from the plan, especially if you’re taking out funds for non-educational purposes or if you’re closing the account before the beneficiary reaches post-secondary education.

6. Transfer Fees: If you decide to transfer your RESP to another provider, you may encounter transfer fees charged by the current provider. These fees can vary, so it’s essential to inquire about them before initiating a transfer.

7. Inactivity Fees: In some cases, RESP providers may charge inactivity fees if there’s no activity in the account for a certain period. This fee encourages account holders to keep their RESP active by making regular contributions or withdrawals.

Understanding the fees associated with RESPs is crucial for maximizing your savings and ensuring that you choose a plan that aligns with your financial goals and preferences. It’s essential to carefully review the fee schedule provided by the RESP provider and ask questions if anything is unclear.

Common RESPs features

RESPs in Canada offer various features designed to help families save for their children’s post-secondary education. Here are some common features found in RESPs:

1. Tax-Deferred Growth: Contributions to RESPs grow tax-free until they are withdrawn to fund the beneficiary’s education. This tax-deferred growth allows savings to accumulate more quickly over time.

2. Government Grants: RESPs are eligible for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), which can help boost savings. These grants are deposited directly into the RESP account and provide additional funds based on contributions and the family’s income level.

3. Flexible Contribution Options: RESP contributors have flexibility in how much and how often they contribute to the plan. There are no annual contribution limits, but there is a lifetime contribution limit per beneficiary.

4. Multiple Beneficiary Options: Family RESPs allow for multiple beneficiaries to be named in the plan, typically siblings. This flexibility allows families to save for the education of all their children within one RESP account.

5. Investment Options: RESPs offer a range of investment options to suit different risk tolerances and investment preferences. These options may include mutual funds, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), and individual stocks and bonds.

6. Educational Assistance Payments (EAPs): When the beneficiary enrolls in a qualifying post-secondary education program, they can start receiving Educational Assistance Payments (EAPs) from the RESP to cover educational expenses. EAPs consist of both the investment growth and any government grants earned in the account.

7. Transferability: RESPs are transferable between different beneficiaries within the same family plan, allowing funds to be redirected if one beneficiary decides not to pursue post-secondary education.

8. Flexibility in Withdrawals: While RESPs are intended for post-secondary education, they offer some flexibility in withdrawals. For example, if the beneficiary decides not to pursue higher education, contributions can be returned to the subscriber, and investment growth can be transferred to an RRSP (Registered Retirement Savings Plan) or taxed at the subscriber’s marginal tax rate.

Understanding these common features can help families make informed decisions when choosing an RESP and maximize the benefits of saving for their children’s education.

Why should you choose an RESP

Choosing a Registered Education Savings Plan (RESP) can offer numerous benefits for families looking to save for their children’s post-secondary education. Here are several compelling reasons why you should consider investing in an RESP:

1. Tax-Free Growth: One of the primary benefits of RESPs is the ability to grow your savings tax-free. Contributions to the plan accumulate investment income over time without being subject to annual taxation, allowing your savings to compound more quickly.

2. Government Grants: RESP contributions are eligible for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), which can provide additional funds to boost your savings. These grants are deposited directly into the RESP account and can significantly enhance your education savings.

3. Flexible Contribution Options: RESPs offer flexibility in how much and how often you contribute to the plan. There are no annual contribution limits, allowing you to save according to your financial situation and goals.

4. Multiple Beneficiary Options: Family RESPs allow you to name multiple beneficiaries, typically siblings, within the same plan. This flexibility ensures that your education savings can benefit all of your children, regardless of their age or educational aspirations.

5. Investment Options: RESPs offer a wide range of investment options to suit your risk tolerance and investment preferences. Whether you prefer conservative options like Guaranteed Investment Certificates (GICs) or more growth-oriented options like mutual funds or stocks, you can tailor your investments to align with your financial goals.

6. Educational Assistance Payments (EAPs): When the beneficiary enrolls in a qualifying post-secondary education program, they can start receiving Educational Assistance Payments (EAPs) from the RESP to cover educational expenses. These payments consist of both the investment growth and any government grants earned in the account.

7. Transferability: RESPs are transferable between different beneficiaries within the same family plan, allowing you to redirect funds if one beneficiary decides not to pursue post-secondary education.

8. Flexibility in Withdrawals: While RESPs are intended for post-secondary education, they offer some flexibility in withdrawals. If the beneficiary decides not to pursue higher education, contributions can be returned to the subscriber, and investment growth can be transferred to an RRSP or taxed at the subscriber’s marginal tax rate.

By choosing an RESP, you can take advantage of these benefits to save effectively for your children’s education and help alleviate the financial burden of post-secondary schooling.

Pros and cons of RESPs

Registered Education Savings Plans (RESPs) offer several advantages and disadvantages. Here’s a detailed look at the pros and cons:

Pros:

1. Tax Advantages: Contributions to RESPs grow tax-free, allowing your savings to compound more quickly over time. Additionally, when the beneficiary withdraws funds for post-secondary education, they’re typically taxed at their lower student tax rate, potentially resulting in significant tax savings.

2. Government Grants: RESPs are eligible for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), which can provide additional funds to boost your savings. These grants can significantly enhance your education savings without requiring additional contributions from you.

3. Flexible Contribution Options: RESPs offer flexibility in how much and how often you contribute to the plan. There are no annual contribution limits, allowing you to save according to your financial situation and goals.

4. Investment Options: RESPs offer a wide range of investment options to suit your risk tolerance and investment preferences. Whether you prefer conservative options like Guaranteed Investment Certificates (GICs) or more growth-oriented options like mutual funds or stocks, you can tailor your investments to align with your financial goals.

5. Multiple Beneficiary Options: Family RESPs allow you to name multiple beneficiaries, typically siblings, within the same plan. This flexibility ensures that your education savings can benefit all of your children, regardless of their age or educational aspirations.

Cons:

1. Penalties for Non-Qualifying Withdrawals: If funds are withdrawn from an RESP for non-educational purposes or if the beneficiary does not pursue post-secondary education, the investment growth portion of the withdrawal is subject to taxes at the subscriber’s marginal tax rate, along with a 20% penalty.

2. Complexity and Regulations: RESPs are subject to specific rules and regulations set by the government. Understanding these rules, such as contribution limits, withdrawal criteria, and grant eligibility requirements, can be complex and may require careful planning and monitoring.

3. Investment Risk: Like any investment, there is a level of risk associated with RESPs, especially if you choose investment options that are subject to market fluctuations. While higher-risk investments may offer greater potential returns, they also carry a higher risk of loss.

4. Potential Fees: RESPs may come with various fees, including administration fees, management expense ratios (MERs), and sales charges. These fees can erode your returns over time and should be carefully considered when choosing an RESP provider.

5. Loss of Grants for Non-Contributing Years: If you fail to contribute to an RESP in certain years, you may lose out on government grants for those years. It’s essential to make regular contributions to maximize your grant eligibility and take full advantage of the available incentives.

Overall, while RESPs offer significant benefits for saving for education, it’s essential to weigh the pros and cons carefully and consider your financial situation, goals, and risk tolerance before investing in an RESP.

How to choose an RESP

Choosing the right Registered Education Savings Plan (RESP) is crucial for maximizing your savings and achieving your educational goals. Here’s a detailed guide on how to choose an RESP:

1. Understand Your Goals: Start by defining your education savings goals. Consider factors such as the number of beneficiaries, their ages, the expected cost of post-secondary education, and your investment timeline. Understanding your goals will help you choose an RESP that aligns with your needs.

2. Research RESP Providers: Research different RESP providers to compare their offerings, including investment options, fees, customer service reputation, and track record. Look for providers that offer a wide range of investment options, competitive fees, and excellent customer support.

3. Consider Government Grants: Determine your eligibility for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). Look for RESP providers that facilitate the application process for these grants and ensure that you can maximize your grant eligibility.

4. Evaluate Investment Options: Consider the investment options offered by each RESP provider and choose options that align with your risk tolerance and investment preferences. Look for a diverse range of investment options, including mutual funds, exchange-traded funds (ETFs), guaranteed investment certificates (GICs), and individual stocks and bonds.

5. Review Fees and Charges: Carefully review the fees and charges associated with each RESP provider, including administration fees, management expense ratios (MERs), sales charges, and withdrawal fees. Compare the fees of different providers and consider how they will impact your overall returns over time.

6. Assess Flexibility and Features: Evaluate the flexibility and features offered by each RESP provider, such as the ability to transfer funds between beneficiaries, make additional contributions, and change investment options. Choose an RESP that offers the flexibility you need to adapt to changing circumstances.

7. Read the Fine Print: Thoroughly read the terms and conditions of each RESP provider, including any restrictions, penalties, or limitations. Pay attention to factors such as contribution limits, withdrawal criteria, and grant eligibility requirements to ensure that you fully understand how the plan works.

8. Seek Professional Advice: If you’re unsure about which RESP to choose or need help understanding your options, consider seeking advice from a financial advisor or investment professional. They can provide personalized recommendations based on your individual financial situation and goals.

By following these steps and conducting thorough research, you can choose an RESP that meets your needs and helps you save effectively for your children’s post-secondary education.

How to open an RESP

Opening a Registered Education Savings Plan (RESP) involves several steps to ensure that you set up the account correctly and start saving for your child’s education effectively. Here’s a detailed guide on how to open an RESP:

1. Research RESP Providers: Start by researching different RESP providers to compare their offerings, including investment options, fees, and customer service reputation. Look for reputable financial institutions or scholarship plan dealers that offer RESPs and meet your specific needs.

2. Choose the Right RESP Type: Determine whether you want to open an individual RESP, family RESP, or group RESP based on your family’s circumstances and savings goals. Consider factors such as the number of beneficiaries, their ages, and your investment preferences when selecting the RESP type.

3. Gather Required Documents: Before opening an RESP, gather the necessary documents, including personal identification (e.g., government-issued ID), Social Insurance Number (SIN) for the subscriber and beneficiary, and proof of the beneficiary’s age (e.g., birth certificate).

4. Contact the RESP Provider: Once you’ve chosen an RESP provider, contact them to initiate the account opening process. You can typically open an RESP online, by phone, or in person at a branch office, depending on the provider’s preferences and procedures.

5. Complete Application Forms: Fill out the required application forms provided by the RESP provider. Provide accurate and up-to-date information, including your contact details, beneficiary information, and contribution preferences.

6. Choose Investment Options: Select the investment options you want to include in the RESP, such as mutual funds, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), or individual stocks and bonds. Consider your risk tolerance, investment goals, and time horizon when choosing investments.

7. Agree to Terms and Conditions: Review and agree to the terms and conditions of the RESP, including any fees, charges, and investment policies. Make sure you understand the rules and regulations governing the RESP, including contribution limits, withdrawal criteria, and grant eligibility requirements.

8. Make Initial Contribution: Once your RESP account is set up, make an initial contribution to start saving for your child’s education. You can contribute funds through various payment methods accepted by the RESP provider, such as bank transfer, cheque, or electronic funds transfer (EFT).

9. Apply for Government Grants: If you’re eligible for government grants, such as the Canada Education Savings Grant (CESG) or the Canada Learning Bond (CLB), submit the necessary applications to ensure that you receive these additional funds in your RESP account.

10. Monitor and Manage Your RESP: After opening the RESP, monitor your account regularly to track your contributions, investment performance, and grant payments. Consider reviewing your investment strategy periodically and making adjustments as needed to stay on track with your savings goals.

By following these steps, you can successfully open an RESP and start saving for your child’s post-secondary education with confidence.

What’s the RESP contribution limit?

The lifetime contribution limit for a Registered Education Savings Plan (RESP) is $50,000 per beneficiary. This means that the total amount of contributions made to all RESPs for a specific beneficiary cannot exceed $50,000 over their lifetime.

It’s important to note that there are no annual contribution limits for RESPs, allowing contributors to save according to their financial means and goals. However, exceeding the $50,000 lifetime contribution limit may result in penalties or tax implications.

Additionally, while there are no limits on how much you can contribute to an RESP each year, government grants, such as the Canada Education Savings Grant (CESG), are subject to annual contribution limits. For example, the CESG matches 20% of annual contributions up to a certain limit, which is typically $500 per year or $1,000 in certain carry-forward situations.

Overall, it’s essential to be aware of the lifetime contribution limit for RESPs and monitor your contributions to ensure that you stay within the allowable limit for each beneficiary.

Do you have to go to university or college to use an RESP?

No, you do not have to attend a university or college to use the funds from a Registered Education Savings Plan (RESP). RESPs are designed to support various types of post-secondary education, including university, college, trade school, vocational programs, apprenticeships, and other eligible educational pursuits.

As long as the educational program meets the criteria set by the government, such as being at least three consecutive weeks in duration and leading to a recognized degree, diploma, or certificate, the beneficiary can use the funds from the RESP to cover eligible expenses.

It’s important to note that RESPs offer flexibility in how the funds can be used, allowing beneficiaries to pursue different educational paths that align with their interests, skills, and career goals. Whether it’s attending a traditional university, enrolling in a community college program, or pursuing specialized training, RESPs provide financial support to help beneficiaries achieve their educational aspirations.

How does an RESP work?

Registered Education Savings Plans (RESPs) work as tax-advantaged investment vehicles designed to help families save for their children’s post-secondary education. Here’s a detailed explanation of how RESPs work:

1. Open an RESP Account: The first step in using an RESP is to open an account with a financial institution or scholarship plan dealer that offers RESPs. The account holder, known as the subscriber, contributes funds to the RESP on behalf of the beneficiary, typically a child or grandchild.

2. Make Contributions: Contributions to the RESP are made with after-tax dollars, meaning there’s no immediate tax deduction. The subscriber can make contributions to the RESP according to their financial means and goals, with no annual contribution limits.

3. Invest the Contributions: The contributions to the RESP are invested in various investment options chosen by the subscriber, such as mutual funds, guaranteed investment certificates (GICs), exchange-traded funds (ETFs), or individual stocks and bonds. The investments grow tax-free within the RESP until they are withdrawn.

4. Receive Government Grants: RESPs are eligible for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), which provide additional funds to boost savings. These grants are deposited directly into the RESP account based on contributions and grant eligibility criteria.

5. Beneficiary Enrolls in Post-Secondary Education: When the beneficiary enrolls in a qualifying post-secondary education program, such as university, college, trade school, or apprenticeship, they can start receiving Educational Assistance Payments (EAPs) from the RESP to cover educational expenses.

6. Withdraw Funds: Educational Assistance Payments (EAPs) consist of both the investment growth and any government grants earned in the account. The beneficiary can use these funds to pay for tuition, books, supplies, living expenses, and other eligible educational costs.

7. Tax Treatment of Withdrawals: While EAPs are taxable in the hands of the beneficiary, they typically have a lower tax rate since students often have lower income during their studies. Additionally, any remaining contributions can be withdrawn tax-free by the subscriber.

8. Unused Funds and Penalties: If the beneficiary decides not to pursue post-secondary education, or if there are unused funds in the RESP, the subscriber has options for managing the account, such as transferring the funds to another eligible beneficiary, rolling over the investment growth to an RRSP, or withdrawing the contributions (subject to taxes and penalties).

Overall, RESPs provide a tax-efficient way for families to save for their children’s education, with the added benefit of government grants to help boost savings. By contributing regularly to an RESP and managing the investments wisely, families can build a substantial education fund to support their children’s future educational goals.

Who’s eligible for an RESP?

To be eligible for a Registered Education Savings Plan (RESP), certain criteria must be met. Here’s a breakdown of who is eligible to open and contribute to an RESP:

1. Subscriber Eligibility: The subscriber is the person who opens and contributes to the RESP on behalf of the beneficiary (the future student). The subscriber can be any individual who has a valid Social Insurance Number (SIN) and is a resident of Canada. This typically includes parents, grandparents, other family members, or even non-family members interested in contributing to the beneficiary’s education savings.

2. Beneficiary Eligibility: The beneficiary is the individual for whom the RESP is established, and who will ultimately receive the funds for their post-secondary education. The beneficiary must have a valid SIN and be a resident of Canada at the time the RESP is opened. Beneficiaries can be children, grandchildren, or any other individual designated by the subscriber.

3. Age Limit for Opening an RESP: There is no age limit for opening an RESP. Beneficiaries can be of any age, from newborn infants to adults, as long as they meet the eligibility criteria outlined above.

4. Government Grant Eligibility: To be eligible for government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), the beneficiary must be a resident of Canada and have a valid SIN. Additional eligibility criteria may apply based on the beneficiary’s family income and contributions made to the RESP.

5. Post-Secondary Education Eligibility: While RESPs are primarily designed to support post-secondary education, there are no specific eligibility requirements for the type of educational program the beneficiary chooses to pursue. Whether attending university, college, trade school, vocational program, apprenticeship, or other eligible educational pursuits, the funds from the RESP can be used to cover qualified expenses.

Overall, as long as the subscriber and beneficiary meet the residency and identification requirements outlined by the government, they are generally eligible to open and contribute to an RESP. It’s essential to review the specific eligibility criteria and requirements with the RESP provider to ensure compliance with the rules and regulations governing RESPs.

Alternatives to RESPs

While Registered Education Savings Plans (RESPs) offer significant benefits for saving for a child’s post-secondary education, there are alternative options available for families who may be looking for different ways to save or invest for education expenses. Here are some alternatives to RESPs:

1. Tax-Free Savings Account (TFSA): A Tax-Free Savings Account (TFSA) is a flexible investment account that allows individuals to earn tax-free investment income and withdrawals. While TFSA contributions are not specifically earmarked for education expenses like RESPs, they offer flexibility in how funds are used, making them suitable for saving for any financial goal, including education.

2. Registered Retirement Savings Plan (RRSP) Withdrawals: While RRSPs are primarily intended for retirement savings, the Home Buyers’ Plan (HBP) allows individuals to withdraw funds from their RRSP to purchase a first home, and the Lifelong Learning Plan (LLP) allows individuals to withdraw funds for full-time education or training for themselves or their spouse/common-law partner. While these options can help fund education, they do involve repaying the withdrawals to the RRSP over time.

3. Savings Accounts and GICs: Traditional savings accounts and Guaranteed Investment Certificates (GICs) offer a safe and low-risk way to save for education expenses. While they may not offer the same tax advantages as RESPs, they provide stability and liquidity, making them suitable for short-term savings goals or as part of a diversified savings strategy.

4. 529 Plans (in the United States): 529 plans are tax-advantaged investment accounts specifically designed for saving for education expenses in the United States. Similar to RESPs, contributions to 529 plans grow tax-free, and withdrawals are tax-free when used for qualified education expenses. However, 529 plans are only available to residents of the United States and have different rules and regulations compared to RESPs.

5. Educational Trust Funds: Some families may choose to set up educational trust funds to save for their children’s education. These trust funds can be established with a trustee and can be structured to provide financial support for education expenses according to the family’s preferences and needs.

6. Scholarships and Grants: Encouraging children to pursue scholarships and grants can help offset the cost of education. Families can explore various scholarship opportunities, both merit-based and need-based, to help fund their children’s education.

Each of these alternatives to RESPs has its own advantages and considerations, and the best option will depend on the individual family’s financial situation, goals, and preferences. It’s essential to carefully evaluate each option and consult with a financial advisor to determine the most suitable approach for saving for education expenses.

FAQs about RESPs in Canada