Saving for education

Registered Education Savings Plan (RESP) and Canadian Education Savings Grant (CESG)

What it is:

  • A plan to finance post-secondary education.
girls laughing

Who can use it:

  • Everyone – parents, grandparents, relatives, family friends.
  • Adults planning to return to school.
blackboard

Main advantages:

  • Money invested grows tax-deferred.
  • Taxed as income to the student.
  • Canada Education Savings Grant (CESG) money: The grant can be 20%, 30% or 40% on the first $500 contributed (the amount depends on family income) and 20% on the remaining $2,000 contributed per child per year.
  • Lifetime contribution limits of $50,000.
  • Wide range of investment options.
  • Family plans allow accumulated earnings to be shared among more than one beneficiary.
boy with open book

Potential limitations:

  • If your child does not pursue post-secondary education, all CESG money must be returned to the government. Subscribers can withdraw contributions tax-free, and investment earnings can be rolled into the subscriber’s RRSP* (if contribution room is available) or withdrawn in cash. When withdrawn in cash, there is a 20% tax penalty in addition to regular income taxes.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.

Special considerations:

  • Must have a valid Social Insurance Number and be a resident 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. Also, the amount of money made available 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.