The RESP: The Education Grant
The Registered Education Savings Plan (RESP) is a contract between you and the government to save for a child's post-secondary education. The biggest highlight is the "free money" provided through grants.
The CESG Grant
The Canada Education Savings Grant (CESG) matches 20% of your contributions, up to $500 per year per child. This is an immediate 20% return on your investment before the market even moves. The maximum lifetime CESG a child can receive is $7,200.
The Match Math
Canada Learning Bond (CLB)
Families with lower household incomes can receive an additional up to $2,000 from the government through the CLB to help kickstart their child's RESP, without needing to make any personal contributions.
The Rules
- Generational: Usually opened by parents or grandparents for a child (the beneficiary).
- Limits: There is no annual contribution limit, but there is a lifetime limit of $50,000 per child.
- Withdrawals: Contributions come out tax-free to the subscriber. Grants and growth (EAPs) are taxed in the student's hands (which is usually $0 tax).
What if they don't go to school?
Don't worry. You can keep the account open for 35 years. If the child doesn't attend school, you get your original contributions back tax-free. However, the government grants must be returned, and growth is taxed + subject to a 20% penalty unless transferred to an RRSP.