What is Registered Education Savings Plan (RESP) and what are its Benefits?

Ruchika Verma
5 min readApr 19, 2023

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A Registered Education Savings Plan (RESP) is a type of tax-advantaged investment account in Canada that is designed to help parents and other contributors save money for a child’s post-secondary education. The account is registered with the Canadian government and allows contributions to grow tax-free until the beneficiary (the child) withdraws the funds to pay for eligible educational expenses. Thus, RESP is one of the best ways to save for a child’s post-secondary education.

Advantages of RESP are — One of the main advantages of an RESP is the potential for significant tax savings. Contributions to an RESP are not tax-deductible, but the investment growth and government grants are tax-free while in the account. In addition, the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) provide additional funding to eligible families. The CESG matches contributions up to 20% on the first $2,500 in annual contributions, while the CLB provides up to $2,000 for children from low-income families. These grants can help families save more for their child’s education and make the RESP an attractive savings option.

Another advantage of an RESP is the flexibility it offers. Contributions can be made to the account by parents, grandparents, or other family members, and there are no annual contribution limits. The account can also be invested in a variety of investment options, allowing contributors to choose an investment strategy that meets their risk tolerance and goals. When the beneficiary begins post-secondary education, they can withdraw funds from the RESP to pay for tuition, books, and other eligible expenses. The withdrawals are taxed in the hands of the beneficiary, who is likely to be in a lower tax bracket than the contributor. If the beneficiary does not pursue post-secondary education, the contributions can be returned tax-free to the contributor, but the investment growth and government grants will be subject to taxes and penalties.

However, there are also some disadvantages to consider when deciding whether to open an RESP. One potential disadvantage is that the funds in the account must be used for eligible educational expenses or face penalties and taxes. This can limit the flexibility of the funds and restrict their use for other purposes. In addition, some RESP providers may charge fees or have restrictions on the investments available, which can affect the overall return on investment. Finally, if the beneficiary does not pursue post-secondary education, the investment growth and government grants may be subject to taxes and penalties.

In summary, an RESP is a tax-advantaged investment account in Canada that can be a useful tool for saving for a child’s post-secondary education. It offers potential tax savings, government grants, and investment flexibility, but it also has some limitations and potential fees to consider. It’s important to carefully consider the pros and cons and consult with a financial advisor before opening an RESP to ensure that it’s the right choice for your family’s education savings goals.

What is the limit of the money to put in Registered Education Savings Plan?
There is no annual limit on the amount of money that can be contributed to a Registered Education Savings Plan (RESP) in Canada. However, there are lifetime contribution limits that must be considered.

The lifetime contribution limit for an RESP is $50,000 per beneficiary. This means that the total amount of money that can be contributed to an RESP for a single beneficiary cannot exceed $50,000, regardless of how many contributors there are.

It’s worth noting that while there is no annual contribution limit, the Canada Education Savings Grant (CESG) is only paid on the first $2,500 in annual contributions. The maximum grant amount per year is $500, which represents a 20% matching contribution on the first $2,500 of annual contributions. Therefore, it may not make financial sense to contribute more than $2,500 per year to an RESP for the purpose of maximizing the CESG.

It’s important to keep track of the lifetime contribution limit for each beneficiary to avoid over-contributing and potentially facing penalties. If the lifetime contribution limit is exceeded, the excess contributions may be subject to taxes and penalties.

Can you put all 50000 for Registered Education Savings Plan in one year and will it be beneficial?

While there is no annual limit on the amount that can be contributed to a Registered Education Savings Plan (RESP) in Canada, there is a lifetime contribution limit of $50,000 per beneficiary.

Contributing the entire $50,000 limit in one year is possible, but it may not be the most effective way to maximize the benefits of an RESP. This is because the Canada Education Savings Grant (CESG) is only paid on the first $2,500 in annual contributions, up to a maximum grant amount of $500 per year. Therefore, contributing the full $50,000 in one year would only result in a $500 grant, whereas contributing $2,500 per year for 18 years would result in a higher amount in grants.

Additionally, contributing a large amount in one year may cause the RESP to exceed the annual limit for contributions from the CESG or other government grant programs, resulting in a lower overall grant amount. It’s important to consult with a financial advisor to determine the most effective contribution strategy based on individual circumstances and goals.

In summary, while it is possible to contribute the full $50,000 limit to an RESP in one year, it may not be the most effective way to maximize the benefits of the account. It’s important to consider the lifetime contribution limit and the impact on government grants when deciding on a contribution strategy.

Conclusively, whether you want to save for your own children, your grandchildren, an RESP offers flexibility, tax-deferred investment growth and direct government assistance to help you save for a child’s education

  • The Canada Education Savings Grant (CESG) matches 20% on the first $2,500 contributed annually to a maximum of $500 a year ($7,200 overall) for a child under the age of 18, plus possible catch-up grants.
  • Interest income and investment growth earned within an RESP are not taxed as long as the funds remain in the plan.
  • Incentives are also available for qualifying families through the Alberta Centennial Education Savings (ACES) Plan and the Quebec Education Saving Incentive (QESI). Some children are also eligible for a $500 Canada Learning Bond (CLB) with an additional $100 a year up until the age of 15.

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