What is a RESP?

A RESP or Registered Education Savings Plan is an investment vehicle used by parents and grandparents to save for their children's post-secondary education. In addition to tax-sheltered growth, parents have access to two government incentives to assist with contributions.  The Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB).

An RESP is a tax shelter, designed to benefit post-secondary students. With an RESP, contributions will not generate a tax write off, however, on withdrawal its taxed in the hands of your child, who will likely not be earning an income, and so almost no taxes would be paid on any growth.

Employment and Social Development Canada (ESDC) provides an incentive for parents to save for a child's post-secondary education by paying a grant based on the amount contributed to an RESP for the child. 

No matter what your family income is, ESDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200. 

How much could this help?

Net family income for 2016	Family net income up to $45,282	Family net income between $45,283 and $90,563	Family net income of more than $90,563
CESG on the first $500 of annual RESP contribution	40% = $200	30% = $150	20% = $100
CESG on $501 to $2,500 of annual RESP contribution	20% = $400	20% = $400	20% = $400
Maximum yearly CESG depending on income and contributions	$600	$550	$500
Lifetime maximum CESG for which you may qualify	$7,200	$7,200	$7,200

Can I use the money for something else if I change my mind?

Any principal contributed to the RESP can be withdrawn at any time by its contributor. In this case, any eligible CESG payments on those contributions must be repaid to the Government. If the beneficiary has also received additional CESG, none of the beneficiaries in the plan will be eligible for additional CESG for the next 2 years.

If the student elects to not attend a post-secondary institution, any accumulated interest may be withdrawn by the contributor; this is called an AIP (Accumulated Income payment). To receive this AIP, the plan must be in place for at least 10 years and all beneficiaries must be over 21 years old. This AIP is taxed as income unless it is rolled into a registered retirement savings plan (RRSP), subject to individual contribution limits and applicable rules.