What is an RESP and how does it work?

Whether your child decides to go to community college, university, trade school or do an apprenticeship, you can invest in their future now by starting a Registered Education Savings Plan (RESP).

Higher education can be expensive. The average annual cost of post-secondary tuition in Canada increased 2.9% for the 2024 academic year to $7,360 — and that doesn't include fees and cost of living expenses¹. Putting a small amount of money into your child's RESP every month or depositing a lump sum every year can add up. Whatever your child wants to be when they grow up, they can pursue their dreams without as much worry about the cost of their education or taking out student loans.

Here's what you need to know about RESPs.

A Registered Education Savings Plan is a tax-deferred savings account. Essentially, the government encourages Canadians to save for their kids' education by providing them with incentives.

For instance, by saving in an RESP:

• You may have access to government grants and bonds at both the provincial and federal level that boost your savings.
• Your money grows tax deferred until it's taken out to pay for qualified education expenses.

With an RESP, the subscriber is the person who opens the account – usually a parent –who can contribute up to a lifetime maximum of $50,000 per child. Friends and family members can also contribute to the RESP with the subscriber’s consent. The money is invested inside the RESP, allowing it to grow. Because contributions grow inside the RESP tax deferred, the student may end up with more money than was originally invested. 

For example, if you put $10,000 into an RESP for an 8-year-old with dreams of being a veterinarian, and that RESP earned 4% per year over the next 10 years, your contributions could be worth $14,802.44 when they're ready to head to their campus of choice. That will pay for a lot of science textbooks.

RESP contributions aren’t tax deductible, but your savings can grow tax-deferred. When withdrawn for education, taxes apply only to investment income and government grants – not your contributions

Also, how your money grows in an RESP will depend on how you invest your funds. You can work with a Scotia advisor to decide what will work best with your financial plan.

If you decide an RESP is right for your child, the best time to start contributing to an RESP is when they’re born. The longer the money stays invested, the more it may grow by the time your child is ready for post-secondary education.

Of course, this will also depend on how your money is invested. 

RESPs have a lifetime maximum contribution limit of $50,000 per beneficiary. How you contribute is up to you — as long as you don't go over the contribution amount.

There are many ways to contribute to an RESP. You can:

• Save a certain amount each month, starting when your child is born
• Make annual contributions
• Deposit $50,000 in a lump sum if you have a sudden windfall

One thing to keep in mind: If you contribute over $50,000, you'll have to pay tax on the over contribution at 1% per month until you withdraw it.

If you're interested in an RESP, there are two main types to choose from. Each offers a range of investment options:

• Family plan — Lets you pool contributions for one or more children in the same family. Each child must be related to the subscriber (person who opens the account) by blood or adoption.
• Individual plan — Lets you name one beneficiary without age or relationship restrictions (it can even be yourself).

Depositing money into an RESP is simple.

You (the subscriber) can make a lump-sum deposit at a branch or through online or mobile banking, or you can set up regular Pre-Authorized Contributions (PAC) from your bank account.

Regardless of how you contribute, make sure you’re maximizing your RESP.

A Scotiabank advisor can help you open an RESP and estimate how much you may need to contribute before your child graduates from high school.

To qualify for government grants for a given year, you must make your RESP contribution by December 31 of that year.

You can make contributions to an RESP until the last day of the 31st year after the plan is opened.

The subscriber is the person who sets up the RESP and the only person who can contribute to or withdraw from the plan.

To start, the subscriber, who is usually a parent, will need to contact their RESP provider. The provider will ask to see proof that the beneficiary (the child) is enrolled in a qualifying part-time or full-time education program.

Typically, proof can mean either proof of enrolment, online confirmation of enrolment or an invoice and online timetable that display the beneficiary’s²:

• Full name of the student
• Educational institution’s name (by logo, letterhead or website address)
• Educational program name (program of study)
• Start date – must be for the current academic session
• Indicates if they are full time or part time

Once your provider is satisfied with the information that you provide, you can move onto the next steps of your withdrawal.

The length of time between initiating an RESP withdrawal and seeing the money in your bank account varies by financial institution. An RESP withdrawal typically takes 5 to 10 business days to process once you submit your proof of enrollment.

An RESP must be closed no later than December 31st of the 35th year after the RESP is open; or by February of the year following an Accumulated Income Payment (AIP).

The good news is that federal government incentives are available to help boost RESP savings, such as:

• Canada Education Savings Grant (CESG) — The basic CESG matches 20% on the first $2,500 or less of your eligible contributions each year. You can receive up to $500 (or $1,000 with carry forward) per year per beneficiary under 18 up to a lifetime maximum of $7,200.⁴

Note: Contributions must be made on or before December 31 of the calendar year in which the beneficiary turns 17. Contributions made during the calendar year that a beneficiary turned 16 or 17 years old can receive the CESG if one of the following conditions apply before the end of the calendar year the beneficiary turned 15: (i) a minimum of $100 in annual RESP contributions has been made (and not withdrawn) in any 4 years, or (ii) a minimum of $2,000 in contributions has been made (and not withdrawn) .

• Additional CESG — Depending on the adjusted income of their primary caregiver, you could receive an additional CESG of 10% or 20% on the first $500 or less contributed each year, up to an additional $100 per year per beneficiary under 18 towards the maximum lifetime CESG of $7,200 (basic and additional combined).4 Additional CESG cannot be carried forward.

• Canada Learning Bond (CLB) — Depending on the adjusted income of their primary caregiver, children born on or after January 1, 2004, who reside in Canada, have a valid SIN and are less than 21 years at the time of the application, may receive the CLB. It offers a $500 initial deposit, then $100 per year until the eligible beneficiary reaches 15 years of age, to a lifetime maximum of $2,000. CLB amounts accumulate for each child until the year they turn 15 years old even if they are not beneficiaries of an RESP.  You don't have to contribute to an RESP to receive the CLB.

In addition to federal incentives, you may also want to explore any provincial grants that could be available.

If your child is an RESP beneficiary but decides not to pursue post-secondary education, you have several options:

• You may name another beneficiary, such as another child, if they meet the conditions of your plan.
• You may make a tax-free withdrawal of the money you contributed to the RESP, but any grants and bonds paid into the RESP must be returned to the government.
• If you’re eligible to withdraw the investment income, you’ll have to pay taxes on it plus a 20% tax penalty (12% for Quebec residents), unless it is transferred to a Registered Retirement Savings Plan (RRSP) or a Registered Disability Savings Plan (RDSP), if there is room for contributions.

Once you choose the best plan for your family — Scotiabank offers both individual and family plan RESPs — you simply set up an RESP like you would any other account. Be sure to bring your and your beneficiary's official government identification, including SIN, and you're done.

Then, all you have to do is figure out your contribution and investment strategy and help your child decide on their career path.