RESP basics

RESP basics - graduate surrounded by family

Making the dream of higher education possible

Whether you’re a parent, grandparent, relative or close family friend, you want to see the young people in your life succeed. And what better way to provide them with a brighter future than through access to post-secondary education?

RESPs, or Registered Education Savings Plans, are a great way to save for post-secondary education, because investment earnings accrue on a tax-deferred basis, and the federal government will deposit a percentage of certain amounts you contribute in the form of a Canada Education Savings Grant (CESG). Certain provinces also have grant programs for beneficiaries who reside in that province. Investment earnings won’t be taxed until the money is withdrawn.

Who can use it

  • Everyone – parents, grandparents, relatives and family friends.

  • Even adults planning to return to school. 

 

Main advantages 

  • Money invested grows tax-deferred.

  • When money is used to pay for education costs, the investment growth and grant amounts that are part of the withdrawal are taxed as income to the student.

  • Contributions to an RESP can earn Canada Education Savings Grant (CESG) money. The grant can be 20%, 30% or 40% on the first $500 contributed (the amount is dependent on the family income) and 20% on the remaining $2,000 contributed per child per year.

  • Generous contribution limits: up to a lifetime maximum of $50,000 per beneficiary.

  • A wide range of investment options.

  • Family plans allow accumulated earnings to be shared among more than one beneficiary. 

 

Potential limitations 

  • The growth on contributions and grants must be used for post-secondary education. If the child does not pursue post-secondary education, all CESG money must be returned to the government. However, subscribers can withdraw contributions tax-free, and if the plan meets certain requirements, investment earnings can be rolled into the subscriber’s RRSP (if contribution room is available) or withdrawn in cash.

  • When investment earnings are withdrawn in cash, there is a 20% tax penalty in addition to regular income taxes.

  • There are restrictions on CESG eligibility for beneficiaries 16 years and older.

  • If total contributions made on behalf of a beneficiary exceed $50,000, subscribers may be assessed a 1% penalty tax per month on their share of the excess contribution. 

 

Special considerations 

  • To qualify for CESG money, plan beneficiaries must have a valid Social Insurance Number and be residents of Canada.

  • Pooled trust plans (also known as “scholarship trusts”) are specialized RESPs that offer many of the advantages of RESPs but have many more restrictions on the use of funds. In addition, the amount of money available to your child is highly dependent on the number of other students in the pool. If you decide to stop contributing to the plan, income earned on your money remains in the pool. 




This information is for general knowledge only and should not be interpreted as financial or tax advice or recommendations. Every individual’s situation is unique and should be reviewed by his or her own personal financial and tax professional.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor's investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

From time to time a manager, analyst or other Fidelity employee may express views regarding a particular company, security, and industry or market sector. The views expressed by any such person are the views of only that individual as of the time expressed and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time, based upon markets and other conditions, and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity Fund.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds, asset allocation services and ETFs. Please read the mutual fund or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.

Read a fund’s or pool’s prospectus or offering memorandum and speak to an advisor before investing. Read our privacy policy. By using or logging in to this website, you consent to the use of cookies as described in our privacy policy.

This site is for persons in Canada only. Mutual funds and ETFs sponsored by Fidelity Investments Canada ULC are only qualified for sale in the provinces and territories of Canada.

225161-v2020106

Close Search