RESP explained: education savings with a 20% government match
The RESP (Registered Education Savings Plan) saves for a child’s post-secondary education — university, college, many trade and vocational programs. What makes it unlike every other account in this series: the government puts money in alongside you.
The 20% match: CESG
The CESG (Canada Education Savings Grant) adds 20% on top of the first $2,500 you contribute each year — a free $500 annually, up to $7,200 per child over the plan’s life.
- Contribute $2,500/year (about $208/month) and the full match arrives every year.
- Missed years can be caught up, one extra year at a time: contribute $5,000 in a year and receive $1,000 of CESG.
- Lower-income families can receive an Additional CESG (an extra 10 or 20% on the first $500), and children from low-income families may qualify for the CLB (Canada Learning Bond) — up to $2,000 deposited by the government with no contribution required at all. If that’s your situation, opening an RESP costs nothing and still collects money.
A guaranteed instant 20% is a return no investment offers. That’s why RESP advice across Canada repeats one line: capture the grant first.
How the money is treated
- Contributions go in after-tax and come back to you tax-free.
- Grants and investment growth compound tax-deferred, and are taxed on withdrawal in the student’s hands — and students, with tuition credits and low income, typically pay little or nothing.
- There’s no annual contribution limit, but a $50,000 lifetime limit per child (across all RESPs for that child — a detail that matters when parents and grandparents each open one).
The rules of the road
- The child (beneficiary) must be a Canadian resident with a SIN — newcomer families qualify; a SIN can be obtained for a child shortly after arrival.
- The plan can stay open up to 35 years — gap years and late starts are fine.
- Family plans let siblings share one RESP, with grants tracked per child.
- Withdrawals for school split in two: your contributions come back tax-free any time; grant-and-growth withdrawals (EAPs — Educational Assistance Payments) are the student-taxed part, capped at $8,000 in the first 13 weeks of full-time study, uncapped after.
If the child doesn’t pursue education
Plans change; the RESP’s exits are defined:
- Your contributions return to you tax-free, always.
- Unused grants go back to the government (they were conditional).
- Investment growth can be taken as cash — taxed as your income plus a 20% penalty — or, far better when possible, rolled up to $50,000 into your RRSP tax-free if you have the room.
- Or simply wait: the plan allows decades for the child to reconsider, and it can be transferred to a sibling.
FAQ
We arrived recently and our child is 10. Is it too late?
No. The catch-up rule lets you claim two years of grant annually ($5,000 contribution → $1,000 CESG), and grant room accrues for years before you even opened the account (from the child’s birth year or arrival in Canada). Between age 10 and 17 a family can still collect most of the $7,200.
Do I need to pick investments inside an RESP too?
Yes — like the other accounts, the RESP is a container. A common pattern is growth-oriented investments while the child is young, shifting conservative as studies approach. The portfolios series returns to this.
What if we leave Canada?
Contributions can be withdrawn tax-free wherever you are, but grants must be repaid if the beneficiary becomes a non-resident before using them, and CESG only accrues while the child is a resident. An RESP makes the most sense for families planning to stay.
Next in the journey: TFSA vs RRSP vs FHSA: which account first?