Planning for your child’s education in Canada with RESPs

by Michael Silver

As university tuition fees rise steadily across Canada, families increasingly rely on Registered Education Savings Plans (RESPs) to ease the financial burden of post-secondary education. With tuition fees averaging around $5,590 annually for Canadian undergraduate students – plus approximately $15,000 per year in additional expenses like housing, food, and transportation – the importance of early and strategic saving becomes clear.

RESPs offer an attractive way for families to save money tax-free until it is withdrawn for educational purposes. One of the key benefits of an RESP is the Canada Education Savings Grant (CESG), where the government matches 20 per cent of annual contributions, up to $500 each year, with a lifetime maximum of $7,200 per child.

However, many parents aren’t aware of the option to “catch up” on missed years. If previous annual contributions were less than $2,500, contributors can deposit up to $5,000 per year to make up for past missed contributions, allowing families to receive up to $1,000 annually in CESG matching grants.

RESPs are available in two main types: Individual and Family Plans. Individual RESPs have a single beneficiary and can be opened by anyone, regardless of relation to the child. Family RESPs, on the other hand, are designed for families with multiple children, allowing flexibility in distributing funds among siblings who attend post-secondary education.

But what happens if your child decides not to pursue post-secondary education? Fortunately, RESPs offer several options. Families can keep the RESP open for up to 36 years, allowing the child time to reconsider. Alternatively, in a Family RESP, funds can be transferred to another eligible family member. If withdrawing the funds is preferred, original contributions can be retrieved tax-free, although government grants must be returned.

Investment earnings within the RESP, known as Accumulated Income Payments (AIPs), can also be withdrawn if certain conditions are met, such as the RESP being open for at least 10 years and the beneficiary reaching 21 without attending post-secondary education. These withdrawals are taxable income and carry an additional 20 per cent penalty. However, to mitigate taxes, families can transfer up to $50,000 of AIPs into their Registered Retirement Savings Plan (RRSP), provided sufficient contribution room is available.

Ultimately, RESPs represent a versatile and beneficial approach for Canadians planning their children’s education, helping families effectively manage costs while providing financial security and flexibility for the future.

Michael Silver, B.Comm. (Hons), CFP®, CHS, is Managing Partner at W.P.G. The Wealth Planning Group