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Ins and Outs of a Registered Education Savings Plan

Author: 1st Choice Savings & Credit Union | Published: August 8, 2023

Childhood flies by quickly; before you know it, you will hear talk about their future, hopes and dreams. Regardless of your child's age, it’s important to think ahead and consider saving for their post-secondary education. Higher education can be expensive, and no matter the route they choose, it’s better to be prepared so you can offer as much support as possible. A Registered Education Savings Plan (RESP) can help you save for your child’s education so they can dream of being whatever they want to be without worrying about the cost.

Table of contents

  1. What Is An RESP?

  2. How Does It Work?

  3. What Does An RESP Offer Me?

  4. What Happens If The Beneficiary Chooses To Not Attend Post-Secondary?

  5. How Do I Open An Account?

What Is An RESP?

A Registered Education Savings Plan (RESP) is a tax-sheltered and long-term plan that helps you save for your child’s post-secondary education fund. This includes trade schools, colleges, universities, apprenticeship programs and CEGEPs. When you initially open an RESP, you have the option to apply for benefits like the Canada Learning Bond and the Canada Education Savings Grant. If eligible, the account will receive additional funding to help with tuition, books, tools, transportation and rent.

How Does It Work?

The best part about a RESP is it’s easy to open and manage. Once you have determined that an RESP is the path best for your goals, as long as you are over the age of 18 and have a valid social insurance number, you are eligible to open an account. As the person who opens the account, you will now be known as a subscriber. An RESP can be opened for any beneficiary you choose. This can be a blood-related individual or someone who is not.

There is no annual contribution limit, but there is a lifetime contribution of a total of $50,000 per beneficiary.

What Does A RESP Offer Me?

There are a few features that go alongside an RESP account.

a. Interest that is compounded and tax-free until you choose to withdraw

b. Tax on only the accumulated income and not the principle

c. A family plan that allows you to open one plan with multiple beneficiaries

d. Up to $500 in annual Canadian Education Savings Grant per beneficiary. This is based on yearly contributions to a lifetime limit of $7,200

What Happens If the Beneficiary Chooses to Not Attend Post-Secondary?

Life and plans change. If the beneficiary of the account decides to not continue their education, there are several options you, as the subscriber, can pursue. You can change the plan to another child, the funds can be allocated to other beneficiaries in the plan, transfer the money to another RESP, transfer the money to an RRSP, or close the plan and cash out. RESPs are all about flexibility and choices.

How Do I Open an Account?

You can book an appointment with one of our financial advisors to discuss a plan of action that fits your lifestyle and matches your financial goals.

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