What Is RESP (Registered Education Savings Plan)?
A tax-sheltered account for saving for a child's post-secondary education, boosted by the federal Canada Education Savings Grant (CESG).
Definition
A Registered Education Savings Plan (RESP) is a tax-sheltered savings account designed to fund a beneficiary's post-secondary education. The federal government adds the Canada Education Savings Grant (CESG) of 20% on the first $2,500 contributed each year per child, up to $500 per year and a lifetime CESG maximum of $7,200. The RESP lifetime contribution limit per beneficiary is $50,000. Investments grow tax-sheltered inside the plan. When the beneficiary enrols in a qualifying educational program, withdrawals for education expenses (Educational Assistance Payments) are taxed in the student's hands, typically at a low rate. If the child does not pursue post-secondary education, contributions can be returned tax-free and accumulated income can be transferred to the subscriber's RRSP (within limits) or returned with a 20% repayment penalty on the income.
Formula
Example
You contribute $2,500 per year to an RESP. The government adds the $500 CESG each year. Over 18 years, you contribute $45,000 and receive $9,000 in CESG (capped at $7,200 over the lifetime), plus investment growth.