ELI5 summary
How an RESP works
A parent, grandparent or anyone else (the subscriber) opens an RESP for one or more children (the beneficiaries) and contributes to it. Contributions are not deductible, but everything inside grows tax-deferred. There is no annual contribution limit, but there is a lifetime limit of $50,000 per beneficiary across all RESPs for that child. Contributions above it are taxed at 1% per month.
Plans come in two main forms. An individual plan has one beneficiary. A family plan can have several beneficiaries who are related to the subscriber by blood or adoption, and lets you share growth between siblings if one does not go to school.
The Canada Education Savings Grant
The federal government adds a basic grant of 20% on the first $2,500 contributed each year per child, which is $500 a year, to a lifetime maximum of $7,200 per child. Families with lower incomes receive an additional grant of 10% or 20% on the first $500 contributed each year, depending on family income.
Grant room accumulates from birth whether or not you contribute. If you miss years, you can catch up, but only one extra year’s grant at a time: the most basic grant a child can receive in a single year is $1,000, on $5,000 of contributions.
Worked example
The Nguyens open an RESP when their daughter is born and contribute $2,500 a year. They receive $500 of grant every year and reach the $7,200 lifetime maximum in the fifteenth year, when only $200 of grant is left, so $1,000 of contributions is enough that year. Over those years they contribute $36,000 and receive $7,200 of grant. A family that starts when their child is 8 can still reach the maximum by contributing $5,000 a year, because each year they catch up one missed year at the same time as the current one.
Age limits. Grants can be paid until the end of the calendar year the child turns 17. Contributions for 16 and 17-year-olds only attract the grant if, before the end of the year the child turned 15, at least $2,000 had been contributed in total, or at least $100 had been contributed in any four earlier years. Start before 15 if you want the full grant.
The Canada Learning Bond
Children in low-income families can receive the Canada Learning Bond: $500 in the first eligible year and $100 for each later year of eligibility, to a maximum of $2,000. It does not require any contribution; the family only has to open an RESP and apply. Many eligible children never receive it because no plan is opened.
Some provinces add their own incentives. Quebec’s QESI adds 10% of contributions, up to $250 a year, and British Columbia’s BC Training and Education Savings Grant pays a one-time $1,200 to eligible children.
Withdrawals for school
When the beneficiary enrolls in a qualifying post-secondary program, whether university, college, trade school or apprenticeship, money comes out in two kinds of payments:
- Refund of contributions: your original contributions, returned tax-free to you or to the student.
- Educational assistance payments (EAPs): grants and investment growth, taxed as income of the student. Because most students have little other income, EAPs are often taxed at a very low rate or not at all.
There is a cap on EAPs in the first 13 weeks of a program, after which there is no limit as long as the student remains enrolled.
If the child does not go to school
An RESP can stay open for up to 35 years, so there is time to wait. If it becomes clear the money will not be used for education:
- Change the beneficiary to a sibling, which keeps the grants in many cases.
- Withdraw your contributions, tax-free. Grants must be returned to the government.
- Take the growth as an accumulated income payment (AIP), generally allowed once the plan has been open at least 10 years and each beneficiary is at least 21 and not pursuing education. An AIP is taxed as your income, plus an extra 20% tax (12% for Quebec residents).
- Move up to $50,000 of the AIP to your RRSP or a spousal RRSP if you have enough contribution room. The transfer avoids the extra 20% tax, and the RRSP deduction offsets the income.
Show the math
Lifetime contribution limit $50,000 per beneficiary; 1% monthly tax on excess. Basic CESG = 20% × min(annual contributions, $2,500 + unused prior-year grant-eligible room), max $1,000 per year and $7,200 lifetime. Additional CESG = 10% or 20% of the first $500 of annual contributions, based on family net income. CLB: $500 initial, $100 per subsequent eligible year to age 15, $2,000 lifetime. CESG available through the end of the year the beneficiary turns 17, subject to the $2,000 / four-year-$100 test before the end of the year they turn 15. AIP conditions: plan open 10+ years and all beneficiaries 21+ and not eligible for EAPs (or other conditions); AIP tax = regular income tax + 20% additional tax (12% in Quebec), reducible by an RRSP contribution of up to $50,000 lifetime.
Key takeaways
- Contribute $2,500 a year per child to collect the full $500 grant; the lifetime grant is $7,200.
- Catch-up is limited to one missed year at a time, so start early.
- Low-income families can get up to $2,000 in Canada Learning Bonds with no contribution.
- If school does not happen, contributions come back tax-free and up to $50,000 of growth can go to your RRSP.