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How does an RESP work?

Optimize Team September 07, 2023
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RESP Basics

The Registered Education Savings Plan (RESP) is an account that can be used to save for the post-secondary education of children. The funds in this account can be contributed by parents, grandparents, relatives, friends, etc. 


Types of Plans

When opening an RESP, there are three different accounts to choose from: Family Plan, Individual Plan, and Group Plan.

  • Family Plan - The family plan is the best option for a household with multiple children. To use this plan, the children must be related to you, either by blood or adoption. This can also include stepchildren, grandchildren, and siblings.

  • Individual (non-family) Plan - This plan is typically used when the child you are saving for is not related to you. Only one name can be listed as a beneficiary in this plan.

  • Group Plan - The group plan is used for one child only, which you do not need to be related to. In this plan, your savings contribution is combined with the contributions from others.



As of 2007, the Canadian Government changed the guidelines dictating the contribution limits for an RESP account. Currently, there is no annual contribution limit that applies to an RESP account, with a $50,000 total contribution limit. 



Those contributing to an RESP can boost their savings contributions by making use of the Canada Education Savings Grant (CESG). With this grant, the Canadian Government will match 20% on the first $2,500 contributed annually to an RESP (max. of $500 per beneficiary per year). The maximum lifetime limit per beneficiary is $7,200, up to the age of 18.


The Canada Learning Bond (CLB) is a $500 benefit provided to children of families with a modest income. The children of these families also qualify for CLB installments of $100 per year until age 15, as long as they continue to meet income thresholds. The total maximum CLB payable per child is $2,000. 


What happens if a child does not pursue Post Secondary Education?

If a child does not continue into post-secondary studies out of high school, you are able to wait for a while to see if they change their mind, as an RESP can stay open for up to 36 years. If the listed beneficiary of an RESP decides never to continue their education, there are a few options available.

  • The money you contributed to the RESP will be returned to you
  • When withdrawing the funds contributed to the RESP, you will not be taxed on this amount. However, you will be taxed on the interest earned in the account. This amount will be taxed at your income tax level, plus an additional 20%.
  • The funds in the account can also be transferred to another RESP for a separate beneficiary.
  • The CESG used in the account can be transferred to siblings, given they have the grant room available. In other cases, the grant shall be repaid to the government.  

To learn more about RESPs and other types of investment accounts, speak with one of our Licensed Optimize Representatives, or follow the link below to get your Complimentary Financial Plan.