The advantages of opting for a registered education savings plan

19 October 2022 by National Bank Investments
A child does his homework

Although most parents value their children's education, they may find it difficult to cover expenses related to post-secondary schooling. A RESP is a savings vehicle that allows you to put money aside for your children's post-secondary education or to save for your grandchildren or other loved ones.

The money saved in the plan will grow thanks to various incentives and grants offered by the federal and provincial governments.

Who can contribute to a RESP? Who can be a RESP beneficiary?

The rules for opening a RESP are quite simple: you must be at least 18 years old, be a resident of Canada and have a social insurance number (SIN).

Every RESP must have a designated beneficiary, who must also be a resident of Canada, have a SIN and pursue post-secondary education at a vocational school, CEGEP or university.

What kind of returns can the contributor expect?

As with most financial products, RESP returns will vary depending on several factors linked to the market and the investment options you choose. In general, the sooner you start saving, the higher your returns are likely to be.

A RESP's main attraction when it comes to returns is that a government grant is added to every contribution, at both the federal and provincial levels. The Government of Canada offers grants to encourage Canadians to save for their children's post-secondary studies. Several provinces offer additional grants of their own as incentives. The extra funds are paid into the beneficiary's RESP.

Why should you invest in a RESP?

Your savings will grow tax-free and be supplemented by government grants, such as the Canada Education Savings Grant (CESG), equivalent to 20% to 40% of your annual contributions.

The government contributes a percentage of every dollar invested into a RESP, up to a specified annual limit and up to a lifetime maximum.

Several investment options are available

To choose the investment solution best suited to your investor profile and financial situation, we recommend consulting an advisor. Eligible products include:

  • Managed solutions and investment funds
  • Guaranteed investment certificates (GICs)
  • Self-directed investments

What are the tax benefits of a RESP?

Contributing to a RESP allows you to grow your savings tax-free. What’s more, since these savings are intended for a child, the taxable portion upon withdrawal will be allocated to the child, at a much lower tax rate than yours.

Unlike a Registered Retirement Savings Plan (RRSP), a RESP does not allow you to reduce your taxable income. However, the capital invested in the RESP and eligible grants will grow tax-free.

What happens if the beneficiary doesn't pursue their education?

In this situation, the contributor can recover the entirety of their RESP contributions with no tax impact since the taxes on the amount invested will already have been paid.

However, any gains and income earned on capital will be taxable at the time of withdrawal. Grant money not used for education will have to be returned to the government.

Funds saved in a RESP that are not used for education can be used for other purposes, such as contributing to a RRSP, if applicable.

RESPs in a nutshell

A RESP offers a concrete way to save for your children's education. How it works:

  • Set aside money for a child's post-secondary education.
  • Your investment grows tax-free.
  • Your savings are supplemented by government subsidies.
  • You have until the end of the 35th year after the RESP was opened to use the funds.
  • Funds withdrawn are taxed at a low rate, as they are allocated to a student in a much lower tax bracket.
  • Numerous expenses related to postsecondary education can be covered, including:
    • Tuition fees
    • Books and school supplies
    • Laptop computer
    • Housing, food and transportation expenses

To make the most of your RESP and make sure you understand all the details, get advice from an expert. They'll help you make informed choices based on your specific situation.

Legal notes

The information and data provided in this document, including that provided by third parties, was considered accurate at the time of publication, and obtained from sources considered reliable. We reserve the right to modify this information and data without advance notice. This information and data are provided to you for information purposes only. No representation or warranty, express or implied, is made regarding the accuracy, quality, or completeness of this information and data. The opinions expressed are not to be construed as solicitation or an offer to buy or sell shares mentioned herein and should not be considered as recommendations.

National Bank Investments is a member of Canada's Responsible Investment Association and a signatory to the United Nations Principles for Responsible Investment.

© 2022 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.

Recent publications

Expert Insights

Access, read and download our latest financial publications for up-to-date economic headlines.

Learn more