RESPs Explained: A guide to funding your child’s education

A great education can set the stage for post-secondary success, but the investment for families is significant. The government estimates that Canadian citizen and permanent residents can expect to pay up to $11,400 per year in tuition alone, or just under $46,000 in total—for a four-year education. That’s why it is essential to begin saving as early as possible.

Investing in a Registered Education Savings Plan (RESP) remains a popular way for parents, grandparents, and anyone with a child in their life, to accumulate post-secondary education savings for them. RESPs can be opened by any adult with a Social Insurance Number and can assist in payment for university, college, trade schools, and apprenticeships, covering post-secondary institutions both in Canada and abroad. They cover tuition as well as residence/rent fees and meal plans, supplies and technology, transportation to the school, and student athletic or activity fees.

In a recent BNN Bloomberg interview, financial planner Jason Heath described RESPs as “the best way to save for a child’s post-secondary education,” and noted, “you can use these plans more effectively than you think.” By devising a conscientious strategy for RESP investment and taxation—and by opening and contributing to the RESP as early in your child’s life as possible—you can reap the maximum benefits of this savings account and ease financial worries as your child approaches post-secondary age.

When is the best time to set up an RESP?

The ideal time to set up an RESP is as soon as possible after the beneficiary (the recipient of the funding) is born. This allows you, the subscriber (the person who sets up the account), to not only take better advantage of potential investment returns over time, but also maximize funds received through government education grants.

What are the different types of RESPs?

Individual RESP plans

Individual plans are set up for a single beneficiary. To set up this plan, you do not need to be related to the beneficiary; for example, you can be a family friend.

These plans are self-directed, so you can decide how to invest the funds within the account. You will likely not need to make a minimum contribution or scheduled payments. Additionally, if the beneficiary meets certain eligibility criteria, they may receive funding into the account from several types of grants.

Family RESP plans

A family RESP plan is best suited to families with two or more beneficiaries, each of whom must be related to you by blood or adoption.

Like individual RESPs, family plans are self-directed. They provide the opportunity to share contributions and grant money among the beneficiaries, so they are often a sensible choice for families with more than one child.

Group RESP plans

Group RESP plans are also called pooled RESPs or Scholarship Trust Plans (STP). You can contribute to these accounts through a group scholarship provider, and you will likely be subject to a fixed payment schedule. These accounts are typically not self-directed; instead, the provider will invest in funds of their own selection.

What is the RESP contribution limit?

RESPs have a lifetime contribution limit of $50,000 per beneficiary. There is no annual limit to how much you can contribute, but it is widely recommended to make annual contributions of $2,500 per beneficiary to maximize grant funding.

Government grants and benefits for RESPs

Canada Learning Bond (CLB)

The CLB is a government benefit available to beneficiaries that meet certain eligibility criteria. The CLB pays $500 into the RESP the first year it is opened, and then another $100 each subsequent year, up to a maximum of $2,000, until the beneficiary turns 15. This benefit is available even if you do not make any contributions to the RESP.

Starting in April 2028, the Government of Canada will automatically open an RESP account to receive the Canada Learning Bond (CLB) for all eligible children born in 2024 or later who do not already have an account set up for them by age four. Additionally, the age limit to claim the CLB retroactively will be extended from 20 to 30 years.

Canada Education Savings Grant (CESG)

The CESG is a government grant that, if maximized, can provide up to $7,200 to beneficiaries. To receive the maximum amount, subscribers must contribute $2,500 per year for 14 years (CESG will provide $500 each year), and then $1,000 in the 15^th year (CESG will provide $200).

What are the taxation and withdrawal rules for RESPs?

Tax efficiency is one of an RESP’s primary benefits, and if you have a clear understanding of the withdrawal rules, you will likely reap the most rewards from these tax advantages.

You can make RESP withdrawals without penalty as soon as the beneficiary has enrolled in a post-secondary education program. RESP contributions are not tax-deductible, but they are tax-sheltered for the duration they are held in the account and are not taxed upon withdrawal.

The following components are taxable to the RESP beneficiary when they are withdrawn:

• Investment earnings on contributions
• Funds received through any federal or provincial grants, and investment earnings on these funds

Since beneficiaries are usually young adults in a lower tax bracket at the time of withdrawal, they will likely pay little to no tax on these components. If the student does generate enough income to pay tax, they may still take advantage of various tax credits and deductions to help minimize that amount.

Any unused RESP funds up to $50,000 can be paid back out to you, except for unused grant funding, which is repaid to the government.

What types of investments can be held in an RESP?

Similar to other registered accounts like RRSPs and TFSAs, RESPs can hold a variety of investment assets including stocks, bonds, Exchange Traded Funds (ETFs), Guaranteed Investment Certificates (GICs), mutual funds, and private investments.

If you open an account for your child as early as possible and invest strategically, time is on your side. A longer investment timeframe allows for more potential income growth on contributions. That said, you should invest with discernment and carefully evaluate all investment options—including a review of their historical performance—for evidence of stability and resilience under various market conditions.

Promoting steady RESP growth with private alternative investments

When deciding how to grow your RESP, it’s wise to think beyond minimal-interest savings and aim for steady, reliable growth. If you’re a parent or grandparent looking for stable investment performance, investing in alternatives like private real estate investment trusts (REITs) can be an ideal strategy. Unlike stocks, which fluctuate with market highs and lows, private REITs offer a stable foundation by tying returns directly to the market value and rental income of the bricks and mortar properties.

Private REITs not only diversify your portfolio but also help manage risk and can help foster long-term financial stability. And if you’re looking for even more ways to diversify, consider private funds in areas like clean energy infrastructure—an exciting and sustainable addition to your investment strategy.

Skyline offers many private alternative investments that may help maximize the value of your RESP to fund your child or grandchild’s education. These real estate and clean energy investments have a proven track record of resilience amid market uncertainty, and have provided a historical annualized return of 9-14% as at June 30, 2024. Skyline investments may help you accelerate savings not only in your RESP, but also in your RRSP, TFSA, or FHSA.

About Skyline Group of Companies

Skyline Group of Companies (“Skyline”) is a fully integrated asset acquisition, management, development, and investment entity. It is comprised of companies that provide services in real estate management and development, as well as clean energy management and development. Skyline currently manages more than $8.95 billion* across its real estate and clean energy platforms.

With approximately 1,000 employees across Canada, Skyline works to provide safe, clean, and comfortable places for tenants to call home, great places to do business, sustainable solutions for a greener future, and an engaging experience for its investors.

View Skyline’s 20^th Anniversary celebration video to see how Skyline is grounded in real estate, powered by people, and growing for the future.

For more information about Skyline Group of Companies, please visit SkylineGroupOfCompanies.ca.

*As at September 30, 2024