The Facts on RESPs

Make the Educated Choice for Your Child's RESP

As a caring parent, you want your child to enjoy a successful life. Today, that means a post-secondary degree or specialized training is a necessity, not an option.

A Registered Education Savings Plan (RESP), created by the Federal Government to help parents provide full education opportunities for their children, allows you to save up to $50,000 per child in a tax-sheltered plan.

Your savings will grow with the help of special plan features:

Receive an additional 20%.

The federal government's Canada Education Savings Grant (CESG) will match your annual RESP contributions by 20%, 30%, or 40% depending on your family income. This adds up to additional contributions ranging from $500 to $600 per year for each child, to a maximum of $7,200 over the life of the plan. You may also be eligible for other government grants. Learn more .

Tax-sheltered growth.

RESPs offer tax deferral on the investment income earned on your savings over the years. If you were to save outside an RESP, your earnings would be subject to tax, greatly decreasing the money available for your child's education. When you save in an RESP, your contributions and your CESG enjoy compound growth that is tax-sheltered.

When the time comes to withdraw funds from your plan, the money is paid in your child's name to reduce taxes. Since students have generally low income levels, little or no tax is payable.

An RESP is the Best Overall Choice

No other savings option provides as many advantages as an RESP. For example, if you were to save in your RRSP and then withdraw it to pay education costs, you'd have to pay income tax on the full amount you withdraw at your tax rate. With an RESP, the interest earnings are paid in the name of your child. Students have generally lower income levels, so little or no tax is payable.

Also an RRSP is not eligible for the 20% grant. You'd be passing up extra money.

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