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What is a Registered Education Savings Plan (RESP)?

If you’re asking, “what is an RESP?”, here’s the simple answer: It’s a way to save money for your child’s college, university, or trade school in the future.

Anyone can open one (parents, grandparents, family friends) just as long as the money goes toward education.


Registered Education Savings Plan Definition

Registered Education Savings Plan: An RESP is a special type of savings account in Canada that helps parents or guardians save money for their child’s education after high school. RESP stands for Registered Education Savings Plan, and it lets your money grow over time while getting help from the government.

How Does an RESP Work?

RESPs are a smart option because they come with perks. The Canadian government adds free money to your savings through something called the Canada Education Savings Grant (CESG). This helps your RESP grow faster without you having to add more.

RESPs are great because they can grow tax-free until the money is taken out to pay for school. Here’s how an RESP account works:

  1. You open an RESP account with a bank or financial company.
  2. You make contributions (deposits) into the account.
  3. The government matches some of your contributions with a grant.
  4. Over time, the money grows. Later, the student uses the RESP for school.

RESP Contribution Limit & Government Help

The Canadian government contributes to an RESP, up to $500 per year, per child. Over time, that can add up to a maximum of $7,200 in free money.

The RESP contribution limit is $50,000 per child over the lifetime of the plan. You don’t get a tax deduction like with RRSPs, so if you’re asking “are RESP contributions tax deductible?”, the answer is no. But the money in the RESP still grows without being taxed until it’s withdrawn.

RESP Withdrawal Rules

When it’s time to use the RESP, there are a few RESP withdrawal rules to keep in mind:

  • The student must be enrolled in a post-secondary program.
  • There are two parts to the withdrawal: your own contributions, and the money from government grants and interest.
  • The student may have to pay taxes on the grant and interest portion but usually at a low rate because they’re in school and not earning much income.

If your child doesn’t go to school, you may be able to move the money to your RRSP (if you have room), or simply withdraw it with some tax penalties. So it’s best to talk to a financial advisor before you take money out.

What Is the Normal RESP Rate?

The normal RESP rate depends on the kind of investment you choose. RESP growth isn’t guaranteed because it depends on where you put your money and how long it stays there.

If you just want to keep things simple, some RESP plans come with lower-risk options. Talk to your bank or credit union about the best choice for you.

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Summary

A Registered Education Savings Plan (RESP) is a helpful tool for saving money for your child’s future education. It’s not just a savings account, it is backed by the government, offers tax-free growth, and can include bonus money through grants.

At Speedy Cash, we know many Canadians are focused on paying bills today, but planning for tomorrow matters too.

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