RESPs: How to Maximize a Great Savings Tool
By James Parkyn - PWL Capital - Montreal
For parents and grandparents planning ahead for a child’s future, a Registered Education Savings Plan (RESP) one of the most valuable savings tools available to Canadian families.
Post-secondary school costs can easily eat up tens of thousands of dollars. Government grants and significant tax advantages make RESPs a very attractive way to cover expenses and build wealth for the next generation.
Yet, although RESP have been around for decades, there is still a lot of confusion about the benefits and how to maximize them. Young parents have competing priorities and may prefer to use limited funds to pay down a mortgage or invest in a Tax-Free Savings Account.
At PWL, it’s not unusual for us to require an hour in a client meeting to explain how RESPs work and the best ways to use them. Here is an explainer to complement our recent Capital Topics podcast on the same subject.
What is an RESP?
An RESP is a tax-advantaged savings account designed to help families save for a child’s post-secondary education. Investments grow on a tax-deferred basis, with withdrawals taxable in the hands of the student rather than the parent or other contributor.
As well, the government deposits generous grants based on how much is contributed.
There are three parties involved in an RESP. First, the subscriber—the person who opens and contributes to the account. This is usually a parent, but it can be anyone such as a grandparent or family friend.
Second, there is a beneficiary—the future student. Beneficiaries need to be a Canadian resident and have a Social Insurance Number (SIN). An individual plan has one child beneficiary, while a family plan can have multiple beneficiaries related by blood or adoption. For families with multiple children, family plans give more flexibility in how savings can be used.
Third, there is the promoter—the financial institution where the RESP is held. Some providers offer group RESP plans, but we generally don’t recommend those. They often come with more restrictions, higher fees and less flexibility than individual or family plans.
When can you create an RESP?
You can create an RESP as soon as a child has a SIN. We recommend getting a SIN as soon as a child is born in order to open the RESP right away and maximize the benefit of compound interest.
What can an RESP invest in?
An RESP can generally hold the same types of investments as an RRSP or TFSA. This includes stocks, bonds, ETFs, mutual funds, GICs, high-interest savings products and cash.
As always, the investment mix should reflect the risk tolerance, risk capacity and time horizon of the child and subscriber. We advise heeding the overwhelming evidence that a well-diversified long-term investing strategy is the best way to succeed in the markets.
What grants are available for RESPs?
The federal government gives the main grant—the Canada Education Savings Grant (CESG). This gives 20% of the RESP contributions made by the subscriber to an annual maximum grant of $500 per child (based on $2,500 of contributions). Think of this as a guaranteed 20% return on your contributions.
Some provinces offer additional grants. Quebec, for example, adds another 10% (to an annual maximum of $250) with its Quebec Education Savings Incentive (QESI).
The federal and Quebec grants thus total as much as $750 a year for a child—turning your $2,500 into $3,250.
These grants are available until the end of the calendar year when the beneficiary turns 17.
If you fail to maximize your contribution in a given year, unused grant room can be carried forward. However, there are limits on how quickly you can catch up. The federal grant is limited to a maximum of $1,000 per year; Quebec, the maximum is $500.
Special rules apply if you wait until the child is 16 or 17 to contribute to an RESP. Beneficiaries aged 16 and 17 can receive the CESG only if specific prior contribution milestones were met before the end of the calendar year when they turned 15.
How much can you contribute to an RESP?
Each beneficiary has a maximum lifetime contribution of $50,000. There is also a lifetime grant limit of $7,200 from the federal government and $3,600 from Quebec.
Obtaining the maximum in grants requires a total of $36,000 in contributions. This means you can contribute up to $14,000 more that won’t be eligible for grants, but will compound tax sheltered in the portfolio. Some or all of this $14,000 can be contributed whenever the funds are available in order to maximize the benefits of compounding.
Can grandparents contribute to an RESP?
Yes. Grandparents can create their own RESP for a child beneficiary or gift funds to parents to contribute in theirs. Keep aware that contribution and grant limits apply to the beneficiary, not an RESP account.
If parents and grandparents contribute to separate accounts for the same child, they should communicate to avoid overcontributions and possible tax penalties.
RESPs also need to be taken into consideration in estate planning. The subscriber is responsible for the account, and funds should be planned for in wills and protection mandates in case of incapacity.
Because of the complexity of managing multiple accounts for a beneficiary, we recommend that grandparents gift funds to the parents’ RESP.
How do you withdraw funds from an RESP?
It’s important to carefully plan withdrawals from an RESP. Failing to do so can leave grants behind or trigger unnecessary taxes.
Not all the funds in an RESP are treated the same when they’re withdrawn. The funds are divided into three buckets: contributions, government grants and investment earnings.
To withdraw funds, a child has to provide proof of enrollment in a qualifying educational program. This can include university, college, trade school or other designated institutions.
You send the proof of enrollment along with a form to the RESP provider specifying how much you’d like to withdraw of each type of funds. The funds are then deposited in a designated bank or investment account. In-kind withdrawals of investments are also usually possible to avoid selling them.
What is the best way to withdraw RESP funds?
There are two types of withdrawals. The first is a Post-Secondary Education Withdrawal (PSE). This comes from the contributions made to the RESP. Since those were made with after-tax money, they aren’t taxable when withdrawn.
The second type of withdrawal is an Educational Assistance Payment (EAP). This comes from the government grants and investment earnings. They’re taxable in the hands of the student rather than the subscriber.
The funds withdrawn in a given year get added to the student’s income for that year. Students generally have relatively low income while attending school, and so they may pay little or no tax on the funds.
It’s generally the most tax-efficient to prioritize EAP withdrawals while they can be taxed at the student’s low rate.
When planning a withdrawal schedule, it’s helpful to consider annual costs for the child, their employment income and how long they expect to go to school. Your contributions (the PSE portion) always belong to you as the subscriber and can generally be withdrawn with no tax consequences.
The EAP, on the other hand, should generally be treated as a “use it before you lose it” type of asset. If the student completes their education or quits school and the EAP amounts haven’t been fully withdrawn, the rules become much more restrictive. This is another reason why we generally want families in the early years of post-secondary education to prioritize withdrawals of EAP.
During the first 13 weeks of enrollment, you can withdraw up to $8,000 in EAP for full-time students and $4,000 for part-time students.
After that initial period, the rules become much more flexible and larger withdrawals are generally possible. There is, however, a maximum EAP threshold of $29,459 for 2026, above which you may need to show receipts and proof of expenses.
What can RESP funds be used for?
Funds can be used at the subscriber’s discretion—for example, for tuition, textbooks, living expenses, housing, transportation. There may even be excess funds that can be used to help provide a strong financial start for the child.
What happens to RESP funds if a child doesn’t pursue post-secondary education?
Contributions can be withdrawn tax-free as they were made with after-tax dollars. If a child doesn’t pursue qualifying post-secondary education, the grants generally must be returned. Investment earnings can be withdrawn as an Accumulated Income Payment, which is taxable to the subscriber and normally subject to an additional penalty tax.
Up to $50,000 of such income can be transferred to an RRSP if the subscriber has sufficient RRSP contribution room. This can significantly reduce or even eliminate the tax consequences.
An RESP can remain open for up to 35 years, so you can wait to close the account in case the child returns to school later.
As well, in a family plan, some assets can be redirected to another beneficiary, subject to applicable rules.
Overall, RESPs are a powerful tax-efficient savings vehicle and great long-term planning tool. The key is to take full advantage of the grants, invest wisely and keep taxes to a minimum.
RESPs can not only help you save money, but also give the next generation a stronger financial foundation and better start in life.
Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.