A Registered Education Savings Plan (RESP) is a dedicated savings plan to help save for education after high school.
An RESP is opened by a “subscriber” for a “beneficiary” to supplement their post-secondary education funding through educational assistance payments (EAPs). The beneficiary can be yourself, a child, or another adult.
There are three types of RESPs: an individual plan, a family plan or a group plan. Group plans are more restrictive because they are only offered by scholarship plan dealers.
While different plans may have different fees, minimum contribution, and payment schedules, the common element is that all RESPs have a lifetime maximum contribution limit of $50,000 per beneficiary.
To sweeten the deal, RESPs also have a guaranteed return through the government's Canadian Education Savings Grant (CESG) up to a lifetime maximum of $7,200 per beneficiary. (Learn more about How to Boost RESP Savings with Grants, Bonds, and Benefits).
We’ll now cover each type of RESP in a little more detail so you can decide which works best for your situation.
1. Individual plan
Anyone can open and contribute to an individual plan—but it is intended to pay for the education of one beneficiary. For an individual plan, the beneficiary doesn't need to be related to the subscriber.
Despite this, these plans are still fairly flexible: if the intended beneficiary doesn’t enroll in post-secondary education, another beneficiary may be able to be named on the plan instead.
Also, individual plans rarely require minimum deposits and scheduled payments and the subscriber can decide how the money is invested.
2. Family plan
A family plan has the advantage of allowing parents to set up one plan for all of their children. Since the added benefits are based on family income, there cannot be multiple families in one RESP contract.
As the name suggests, a family plan can have more than one beneficiary—new beneficiaries can be added to the contract after the fact; however, they must be under the age of 21 when you name them (unless they are already beneficiaries in another family plan which is being transferred to the new plan).
Similar to individual plans, you usually don’t have to make a minimum deposit when you open the plan and you can set the time and amount of the deposits, up to the lifetime limit of $50,000 for each beneficiary.
For all new family plans, beneficiaries must consist only of siblings (including children of the subscriber’s spouse or common-law partner) to receive additional CESG, Canada Learning Bond (CLB) and provincial grants.
Family plans also have withdrawal flexibility: when beneficiaries have different education plans, one child can use more of the money than the others in the plan (with the exception of the CESG—which has a lifetime limit of $7,200 per beneficiary).
This means you can then decide how to divide the funds among the beneficiaries, and you can even transfer contributions, CESG amounts and investment income can be made between siblings, provided the plan of the receiving beneficiary was opened before the receiving beneficiary reached the age of 21.
If one or more beneficiaries of a plan do not qualify for RESP benefits (for example, do not go to post-secondary school), then funds can be transferred to another beneficiary within the plan (regardless of the receiving beneficiary’s age).
3. Group plan
Also known as “scholarship plans”, each group plan is different—but they usually have higher fees and more restrictive rules than individual and family plans.
Group plans can be opened for one child with no relation to the subscriber, but a minimum deposit must be made when opening the plan.
Funds must be deposited into a group RESP according to a set schedule, up to the lifetime contribution limit of $50,000 for a beneficiary.
This is because money you put into a group plan is pooled with contributions of other investors, and all the investment decisions are made for you to try to maximize the earnings from the group pool of funds.
Your child would then share in the earnings of investors with children the same age. The number of children in the group account and the money earned will determine how much your child will receive for their education.
Often, group plans will have rules about which education programs are eligible and how much and how often your child can take EAPs.
Lastly, don’t forget that RESPs are for adults, too—and you can even open one for yourself! (Learn more about Why an RESP is Great for Education Savings.)