Understanding RESPs and how they work: What parents need to know

You’ve invested years in your own education — and you understand better than most just how much it can shape a future. Naturally, you want to give your children every opportunity to follow their own path, whatever that might look like. But with tuition costs continuing to climb — Canadian undergrad fees hit a record high of over $7,300 in 2024 — many parents are wondering how to keep pace.

One option that’s worth a closer look? The Registered Education Savings Plan, or RESP. More than just a savings account, it’s a smart way to set aside money for your child’s education while taking advantage of some helpful government benefits.

So how does an RESP work? Let’s take a look.

What is an RESP?

An RESP is a tax-sheltered plan designed to help you save for a child’s post-secondary education. Parents, grandparents, and other loved ones can contribute over time — and when the student is ready, the funds can be used for university, college, even trade schools, CEGEPs, and apprenticeship programs.

What are the benefits of an RESP?

Canada’s RESPs come with a few standout features that make them a powerful tool for education savings:

1. Tax advantages

Your RESP contributions grow tax-free inside the account. When it’s time to use the money, withdrawals are taxed in the student’s name — which can often result in little or no tax if their income is low during school.

2. Grants and incentives

One of the biggest perks of an RESP is the extra assistance you can get from the government in the form of grants, bonds and incentives. The most notable is the Canada Education Savings Grant (CESG), where the federal government matches 20% of your annual contributions of up to $2,500 every year. This means you can receive a maximum Canada Education Savings Grant (CESG) contribution of $500 per year in your RESP (up to a lifetime limit of $7,200).

Some provinces, like Quebec and B.C., also offer their own incentives to help you boost your savings even further.

3. Built-in flexibility

RESP funds can be used for a variety of post-secondary programs, from trade schools to universities whether in Canada or abroad. They also cover more than just tuition, helping with costs like books, housing, and other living expenses. Plus, family RESPs can have multiple beneficiaries, making them a great option if you’re saving for more than one child.

How much could I save up with an RESP?

You might be surprised how quickly a monthly contribution to your child’s RESP can add up. Here’s an example:

Let’s say you…

• Open an RESP for your child, born in 2024
• Contribute $2,500 each year, starting right away — that’s the amount needed to get the full annual Canada Education Savings Grant (CESG)
• Keep contributing for 17 years, right up until your child finishes high school
• Earn an average annual return of 4.38% (after fees)*

By the time your child graduates from high school, the RESP could have more than $75,000 waiting for them to use for their post-secondary education.

* For illustrative purposes only. The results are based on an estimated annual return of 4.38%, which is aligned to a “balanced” investor portfolio. Investment results are not guaranteed.

RESP contribution limits

As of 2007, there is no annual limit on how much you can contribute to an RESP. However, there is a lifetime contribution limit of $50,000 per beneficiary across all their RESPs — and there are tax consequences for over-contributing.

* Government contributions, like the Canada Education Savings Grant or a designated provincial program, don’t count toward that $50,000 limit.

Source: Government of Canada

RESP withdrawal rules

You can start to withdraw the funds as soon as your child has graduated high school and is enrolled in a qualifying post-secondary educational institution. Keep in mind that many Canadian schools require tuition payments in August, before classes begin in September — so it’s a good idea to plan ahead and make your withdrawal in time.

In terms of paperwork, you’ll be asked to provide official documentation showing the student’s name, program and start date.

What can RESP funds be used for?

When it’s time to access the money in an RESP, the funds can be used to help cover many of the real-world costs that come with post-secondary education, including:

• Tuition and student activity fees
• School supplies, including laptops and textbooks
• Residence fees or off-campus rent
• Meal plans and groceries
• Transportation to and from school
• Studying abroad

Tax rules for RESP withdrawals

From a tax perspective, RESP withdrawals fall into two main categories:

1. Post-Secondary Education (PSE) Withdrawals

These come from the original contributions made by you or other loved ones. These withdrawals aren’t taxed when taken out.

2. Education Assistance Payments (EAPs)

These include any government grants (like the CESG) as well as investment earnings in the RESP. EAPs are taxable, but they’re reported as income by the student.

Did you know?

• There’s no limit to how much you can withdraw from the PSE (contribution) portion of the RESP.
• For the EAP (grant and earnings) portion, there is a cap during the early weeks of school:
  • Students can receive up to $8,000 in EAPs during their first 13 weeks of full-time studies (or $4,000 if enrolled part-time)
  • After that initial period, you can withdraw any amount of EAP, as long as the student remains enrolled in a qualifying program.

Learn more about RESP rules and contribution limits.

We’re here to help

If you have more questions about how to set-up an RESP, or if you are at a point where you need to make a withdrawal from an existing RESP, please reach out to your financial advisor or speak to an RBC Healthcare Specialist.