How does an RESP work in Canada? Grants, rules, and withdrawal basics

How does the RESP work? A subscriber opens an RESP for an eligible beneficiary, contributes money to the account, and may receive government grants such as the Canada Education Savings Grant. The investments held within the RESP may grow on a tax-deferred basis. When the beneficiary enrolls in a qualifying post-secondary program, subscriber contributions can generally be withdrawn tax-free, while grants and investment earnings may be paid to the student as an educational assistance payment, subject to the applicable RESP withdrawal rules.

What is an RESP?

A Registered Education Savings Plan is a savings and investment account registered under the Income Tax Act for the purpose of helping families save for future education costs.

Unlike a Tax-Free Savings Account (opens in a new tab) (TFSA) or Registered Retirement Savings Plan (opens in a new tab) (RRSP), an RESP has a specific purpose. The account is intended to support education expenses for an eligible RESP beneficiary attending a qualifying post-secondary institution.

Contributions are made using after-tax dollars, which means they do not generate an income tax deduction. However, investments held inside the account may grow on a tax-deferred basis while the funds remain in the plan.

The federal government also supports RESP savings through programs such as the RESP grant from the government, including the Canada Education Savings Grant. These grants are deposited directly into the account when eligibility requirements are met.

When funds are eventually withdrawn for qualifying education expenses, different tax rules apply depending on whether the withdrawal consists of original contributions or government grants and investment earnings. Those withdrawal types are discussed later in this article.

Who can open an RESP?

Many people are eligible to open an RESP provided the account meets the program requirements.

The person who opens and manages the account is known as the subscriber. Parents are the most common subscribers, but other individuals may also open an RESP.

Examples include:

• Grandparents

• Legal guardians

• Other relatives

• Family friends, in certain situations

The RESP beneficiary is the person for whom the education savings are intended. To qualify, the beneficiary generally needs to:

• Be a resident of Canada

• Have a valid Social Insurance Number (SIN)

If the beneficiary is not the subscriber's child, the subscriber is generally required to be a Canadian resident when opening the account.

There is no minimum age requirement for the beneficiary when opening an RESP, although individual financial institutions may have their own account opening requirements.

Understanding how to open RESP accounts may also involve selecting a financial institution or investment provider that offers RESP accounts and supports the government grant programs available to eligible beneficiaries.

Individual vs family RESP plans

There are two primary types of RESP accounts available: an individual RESP and a RESP family plan.

Individual plan RESP

An individual RESP has one beneficiary.

The beneficiary does not need to be related to the subscriber, making this type of plan suitable for a wide variety of situations. Parents, grandparents, relatives, or other individuals may establish an individual plan for a single beneficiary, provided the eligibility requirements are met.

Government grants received within an individual RESP remain associated with that beneficiary, subject to the applicable program rules.

Family plan RESP

A RESP family plan allows multiple beneficiaries within the same account.

To qualify, each beneficiary must generally be related to the subscriber by blood or adoption. Eligible beneficiaries commonly include:

• Children

• Siblings

• Grandchildren

A family plan may provide additional flexibility because multiple beneficiaries share the same account. If one child uses less of the available education savings, another eligible beneficiary within the plan may be able to use the remaining assets, subject to the applicable RESP and grant rules.

Government grants may also be shared among eligible beneficiaries in a family plan, provided each beneficiary remains within the applicable lifetime CESG grant amount limits.

Whether someone chooses an individual RESP or a RESP family plan often depends on family size, the number of intended beneficiaries, and how education savings are expected to be used in the future.

How much can be contributed?

One of the most common questions is, “How does an RESP work in Canada as it relates to contribution limits?”

Unlike some registered accounts, an RESP does not have an annual contribution limit. Subscribers may contribute different amounts from year to year, provided the lifetime contribution limit is not exceeded.

The current RESP contribution limit is $50,000 per beneficiary across all RESP accounts. This lifetime maximum applies to total subscriber contributions, regardless of how many RESPs have been opened for the same beneficiary.

For example, parents and grandparents may each open separate RESPs for the same child. While this arrangement is permitted, the combined subscriber contributions across every plan cannot exceed the $50,000 lifetime limit.

Government grants, including the Canada Education Savings Grant, do not count toward the lifetime contribution limit.

If contributions exceed the allowable limit, the excess amount may be subject to a 1% monthly tax until it is withdrawn. Because multiple family members can contribute to separate RESPs for the same beneficiary, keeping track of total contributions may help avoid accidental over-contributions.

The Canada Education Savings Grant 

The Canada Education Savings Grant, commonly referred to as the CESG, is one of the primary government incentives available through an RESP.

The federal government may contribute 20% of the first $2,500 contributed to an RESP each calendar year for an eligible beneficiary. This results in a maximum annual CESG grant amount of $500.

Over the lifetime of the plan, the maximum basic CESG available for each beneficiary is $7,200.

Unused CESG entitlement generally carries forward from year to year. If contributions were not made in a previous year, a beneficiary may have accumulated unused grant room.

When unused room is available, it may be possible to receive up to $1,000 of CESG in a single calendar year by contributing $5,000, provided eligibility requirements are met. This allows one previous year's unused grant room to be claimed along with the current year's entitlement.

The RESP government grant is deposited directly into the RESP after an eligible contribution is processed. While processing times may vary between financial institutions, grants are commonly deposited within several weeks after the contribution has been reported.

If the RESP beneficiary ultimately does not attend a qualifying post-secondary institution, CESG amounts generally cannot be retained. Depending on the circumstances, these grant amounts may need to be repaid to the federal government if they are not used for eligible educational purposes.

Additional CESG and Canada Learning Bond

Some families may qualify for additional federal education savings incentives beyond the basic CESG.

Additional CESG

The Additional Canada Education Savings Grant provides an enhanced grant for eligible beneficiaries based on adjusted family net income.

Depending on annual eligibility, the federal government may contribute:

• An additional 20% on the first $500 contributed each year for families within the lower income threshold.

• An additional 10% on the first $500 contributed each year for families within the middle income threshold.

Income thresholds are reviewed periodically and may change from year to year. Eligibility is determined using information available through the Canada Revenue Agency (opens in a new tab) (CRA).

The Additional CESG is paid automatically when the beneficiary qualifies and an eligible contribution is made.

Canada Learning Bond

The Canada Learning Bond (opens in a new tab) (CLB) is a separate federal program available to eligible children from lower-income families.

Unlike the CESG, no personal RESP contribution is required to receive the Canada Learning Bond. Once an RESP has been opened for an eligible child and all program requirements have been met, the government may deposit the available bond directly into the account.

The Canada Learning Bond currently provides:

• An initial payment of $500 for eligible children.

• Annual payments of $100 for eligible children until age 15.

• A lifetime maximum of $2,000 per beneficiary.

Although personal contributions are not required to receive the Canada Learning Bond, an RESP must generally be open before payments can be made.

Provincial RESP grants

In addition to federal incentives, some provinces offer education savings programs that provide additional funding for eligible beneficiaries.

British Columbia Training and Education Savings Grant (to be discontinued from April 1, 2028)

The BCTESG grant is available for eligible children who are residents of British Columbia.

The program provides a one-time payment of $1,200, which is deposited directly into the beneficiary's RESP after eligibility requirements have been met. Applications generally must be submitted within the program's specified eligibility window.

Quebec Education Savings Incentive

Residents of Quebec may also qualify for the QESI Quebec RESP program.

The Quebec Education Savings Incentive provides a refundable provincial tax credit that is deposited directly into an RESP. Over the lifetime of the plan, eligible beneficiaries may receive up to $3,600, subject to the applicable annual limits and program rules.

Because provincial grants are administered separately from the federal CESG, eligibility requirements, application procedures, and deadlines may vary. Not every RESP provider administers every provincial grant program, so availability may depend on the financial institution offering the RESP.

How the money grows inside an RESP

After contributions and eligible government grants have been deposited into an RESP, the funds may be invested according to the investment options available through the RESP provider.

Depending on the account type, investments may include:

• Stocks

• Exchange-traded funds (ETFs)

• Mutual funds

• Guaranteed Investment Certificates (GICs)

• Savings deposits

• Bonds and other fixed income investments

The investments held within the account may generate interest, dividends, and capital gains over time. While those investments remain inside the RESP, investment growth is generally not taxed each year.

This tax-deferred treatment allows earnings to remain invested until funds are withdrawn for eligible education expenses. When eligible withdrawals are eventually made, the tax treatment depends on the type of withdrawal rather than the type of investment that generated the returns.

The investments selected for an RESP may also change over time. Some families gradually adjust the account's investment mix as the child’s post-secondary education approaches, reducing exposure to investments that may experience greater short-term price fluctuations. 

The specific investment approach may differ based on the beneficiary's age, expected withdrawal timeline, and individual financial circumstances.

How withdrawals work: educational assistance payments vs post-secondary education withdrawals

Once an RESP beneficiary enrolls in a qualifying post-secondary educational program, the RESP may begin making withdrawals.

Under the RESP withdrawal rules, there are two primary types of withdrawals:

• Educational Assistance Payments (EAPs)

• Post-Secondary Education (PSE) withdrawals

Although both provide access to RESP funds, they are treated differently for tax purposes.

Educational assistance payments

An educational assistance payment consists of:

• Canada Education Savings Grant amounts

• Canada Learning Bond payments

• Eligible provincial grants

• Investment earnings generated within the RESP

Educational Assistance Payments are generally paid to the student rather than the subscriber.

Because the payment includes government grants and investment growth, it is generally taxable to the student in the year it is received. Many students have relatively modest taxable income while attending school, which may reduce the amount of tax payable depending on their individual circumstances.

Before an Educational Assistance Payment can be issued, the RESP provider generally requires documentation confirming that the beneficiary is enrolled in a qualifying post-secondary program.

Post-secondary education withdrawals

A PSE withdrawal consists only of the subscriber's original contributions.

Since RESP contributions were made using after-tax dollars, these withdrawals are generally not taxable when they are returned.

A PSE withdrawal may be paid either to the subscriber or directly to the beneficiary, depending on how the withdrawal is requested and the policies of the RESP provider.

Unlike Educational Assistance Payments, PSE withdrawals do not include government grants or investment earnings.

Understanding the distinction between these two withdrawal types is an important part of understanding how an RESP works, since each follows different tax rules.

What if the child does not attend post-secondary education?

One question that sometimes arises is what happens to an RESP if a child decides not to pursue post-secondary education.

Several options may be available depending on the family's circumstances and the status of the RESP.

Keep the RESP open

Under the RESP 35-year rule, most RESPs may remain open for up to 35 years after the plan is established.

This allows additional time if the beneficiary decides to pursue qualifying post-secondary education later than originally expected.

Transfer the RESP to another beneficiary

If the RESP is a RESP family plan, and another eligible beneficiary remains in the plan, some or all of the funds may continue to be used for that beneficiary's education, subject to the applicable RESP and grant rules.

In certain situations, government grants may also be shared among eligible siblings within the permitted lifetime grant limits.

Close the RESP

If the RESP is closed and no qualifying educational program has been attended:

• Original subscriber contributions are generally returned tax-free.

• Government grants, including the CESG, Canada Learning Bond, and eligible provincial grants, generally must be repaid.

• Investment earnings may become an Accumulated Income Payment (AIP), provided the applicable eligibility requirements have been met.

Accumulated income payments

Investment earnings withdrawn after closing an RESP are known as Accumulated Income Payments.

AIPs are generally taxable to the subscriber. They may also be subject to an additional tax unless an exception applies.

One exception involves an RESP AIP transfer RRSP. If the subscriber has sufficient unused RRSP contribution room and all applicable conditions are satisfied, up to $50,000 of eligible Accumulated Income Payments may be transferred to the subscriber's RRSP or spousal RRSP. A qualifying transfer may avoid the additional tax that could otherwise apply to an AIP.

The availability of an RESP AIP transfer RRSP depends on the specific eligibility requirements established under the Income Tax Act.

Final thoughts on Registered Education Savings Plans and savings for a child’s education in Canada

Understanding how an RESP works in Canada involves looking at several components that work together. Subscriber contributions, government grants, tax-deferred investment growth, and education-related withdrawals each play a role throughout the life of the account. The RESP rules in Canada establish how contributions, grants, and withdrawals are administered, while investment choices may change as the beneficiary approaches post-secondary education. Whether the account is opened as an individual RESP or a RESP family plan, the combination of government incentives and tax-deferred growth may help support future education costs when funds are used for a qualifying post-secondary program.