Registered Education Savings Plan (RESP) Checklist: What parents need to know from birth to graduation

The Registered Education Savings Plan offers a structured way for parents and other benefactors to save for a child’s future education costs. The plan allows sponsors to put away money in a separate account where it can grow over time. An RESP promotes early saving and investing for post-secondary education almost as soon as the child is born, which is helpful because of the increasing costs of education.

Perhaps the most important benefit is that the federal government matches contributions to the plan up to a maximum amount. This is through the Canada Education Savings Grant (CESG). ² Here are the numbers you should get familiar with: With every $2,500 contributed to the plans each year, the government will contribute 20% through CESG. For a contribution of $2,500, that 20% equals $500 added to the RESP and will be available to the student to help pay for their post-secondary education costs. The lifetime maximum for the CESG is $7,200.

Additional grants may also be available and certain conditions may apply. You should consider speaking with an advisor to review what options may be available.

Once funds begin to accumulate in an RESP, they are categorized into three distinct groups:

• Grant money
  The portion of the plan contributed by the government in the form of the Canada Education Savings Grant, and/or other eligible grants.

• Your contributions
  Your principal investment, or the portion you contributed.

• Your investment earnings or income
  The portion accrued from the growth of the investments in the plan and any interest earned. When withdrawal time arrives, the grants and investment earnings are referred to as the Educational Assistance Payment (EAP), while your contributions are referred to as the Post-Secondary Education (PSE) withdrawals.

It’s often beneficial to open an account as soon as a child is born in order to contribute for as many years as possible. When a child is born, the parents must register their bundle of joy at the appropriate “Live Birth Registry” in their province. This allows the parents to receive a birth certificate but also a social insurance number which is needed for the registration of an RESP. Once you have a social insurance number in hand, you can contact your financial institution to set up an RESP. In Ontario, parents can access an education savings referral from the birth registry which will put them in touch with a financial advisor.

You can begin to save for a child’s education whenever you’re able and you can continue to add to a child’s RESP until it either hits the maximum lifetime contribution limit ($50,000), or the student reaches the age of 31: The maximum time an RESP can remain open is 35 years.⁴ Even if you get a late start, contributions can continue to grow after a child is enrolled in a post-secondary school but, to get the full benefit of the RESP, it’s recommended to contribute as early as possible. Note, the latest a student can receive a CESG grant is the last day of the year they turn 17, but you must start to save for your child before the end of the calendar year in which they turn 15 in order to be eligible for the CESG.⁵

When you open an RESP, you can choose to open an account for an individual plan which is specific to one child, or a family plan, for more than one child.

The individual plan is straightforward: The funds can only be used by the individual beneficiary named in the plan and the beneficiary does not have to be related to you. For the family plan, the beneficiaries must be related to you either by blood or adoption, either children, stepchildren, grandchildren (including adopted grandchildren), brothers or sisters — nieces, nephews, aunts, uncles and cousins are not considered blood relatives — and all beneficiaries must be under the age of 21 when they are designated for a family RESP.

Some parents may find a family RESP offers needed flexibility as the contributions and grants (to a maximum $7,200 per beneficiary) can be shared amongst the beneficiaries in the plan. Not every beneficiary may decide to follow the same path to study at a university or college. And not every course or academic discipline will run up the same education costs.

Picture a family with twins: Their parents may not anticipate that, if one travels out of province for medical school, and the other lives at home to complete a trade apprenticeship, their financial needs may be different. If the parents had individual plans for each twin and the maximum contributions were made, the parents could find one RESP suffering a shortfall because of high tuition costs while they may have over-contributed to the other. A family RESP may be a solution in this case because the siblings can essentially share the contributions. In fact, if one child doesn’t go to a post-secondary institution, their sibling can enjoy all the contributions made in a family plan up to the maximum limits.