How does RESP work?


Types of RESP

There are three types of RESPs:

  • Individual RESP – This plan is pretty straightforward. Anyone can open this account and contribute to it, be it a parent, grandparent, guardian, a benefactor or even yourself.
  • Family RESP – This plan can have more than beneficiaries, they just have to be related to the contributor or formally adopted by the contributor. The beneficiaries should be under the age of 21 to be added to the plan.
  • Group RESP – In this plan, a single child is a beneficiary, even if the child is not related to the contributor. Many people invest in this plan and the beneficiary shares the pooled earnings with children of the same age group. This plan has a lot more restrictions and rules than other RESP plans.

How this plan works

  1. You, the contributor, enter into a contract with a promoter to open a RESP account for your child, the beneficiary.
  2. You can then make contributions to the RESP that accumulate over time. Government grants (if applicable) will be paid to the RESP as well. Government grants are provided for children under the age of 17.
  3. The amount in the RESP is not taxable and your savings can grow tax-free.
  4. When your child enrolls in post-secondary education, they can start taking payments called Education Assistance Payments (EAPs). These are included in the student’s income. The promoters makes sure payments from the RESP are made according to the terms of the plan. Your child can claim the EAPs when they enroll in university, college or any other specified qualifying education program.
  5. The account can stay open for up to 36 years. Under specified plan rules, the plan can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.
  6. If your child wished to not pursue higher education, the funds can be transferred to a sibling. If there is no sibling, the people who contributed money may transfer it to their personal RRSP tax-free for retirement savings.

Please note that when you close your RESP, the money that you have put into the RESP is returned to you. However, you will have to pay tax on the earnings in the RESP. Although there will be earnings on the CESG, the grant must be returned to the Government of Canada.

Feel free to contact us for more information on RESP plans. We can also help you find out about any conditions that may apply to the plan if your child does not continue their education after high school.