RESPs are designed with one thing in mind: the success of your child. With that, however, certain rules exist to ensure that the program is sustainable and protected from misuse. An outline of these rules is showcased below.
An RESP can be set up for any “beneficiary” including your children, grandchildren, nieces and nephews, friends, or even a random stranger if you’re feeling that benevolent. The beneficiary must have a Social Insurance Number (SIN) to set up an RESP, so if your child doesn’t have one, click here to find out how to get a SIN.
You can also name yourself or another adult as the beneficiary. While adults can earn interest on their RESP tax-free, they are not eligible to receive the Canada Education Savings Grant or the Canada Learning Bond (read more about age limits below).
The lifetime limit on the amount that can be contributed to a beneficiary’s RESPs is $50,000. This includes all RESPs, if the beneficiary has more than one. While you may contribute more than $50,000, there are tax implications for exceeding the limit.
Although there is no annual contribution limit, keep in mind that the government will only give you the grant top-up for the first $2,500 saved each year, unless you are carrying forward unused contribution room.
RESP contribution room and carry-forwards
Sort of like RRSPs, RESPs have the concept of “contribution room” which allows you to catch up if you’ve fallen behind. Contribution room allows for $2,500 per year from the time your child is born (not the year you opened the RESP). So, for example if your child was born in 2018 and you opened the RESP in 2021, you start with $7,500 worth of contribution room.
Know the carry-forward rules!
If you started late or contributed less than $2,500/year in previous years, you can carry forward those missed amounts to current or future years. There are rules, however!
Grant limits on carry-forwards
If you are carrying forward contribution room, you may be tempted to use all that room to catch up entirely in one year and to cash in on some big-time grant money. But, it is important to know that the government will only provide a maximum CESG of $1,000 in a given year. Remembering that CESG is based on 20% of your contributions, that means if you contribute more than $5,000 (i.e. $2,500 for the current year + a $2,500 carry-forward) you won’t receive grants for the overage.
Example: You contribute $0 for Years 1-3.
You contribute $7,500 in Year 4.
Result → $5,000 of your contribution is eligible for grants. The remainder ($2500) is invested in your RESP but is not eligible for grants.
For advice on how to catch up and maximize your grants, contact a Knowledge First RESP expert. They can help create a plan that is best for you!
Annual overpayments don’t become credits
Carry-forwards only work one way. Excess annual contributions do not carry forward to future years as credits.
You have saved $2,500 for Years 1-3 of your child’s life.
You contribute $5,000 in Year 4. Your contribute $0 in Year 5. Result → In Year 4, $2,500 of your contribution is eligible for grants. The remainder is invested in your RESP but is not eligible for grants. In Year 5, $0 is eligible for grants (the overage from Year 4 cannot be applied to Year 5).
There is no limit on the number of plans that an individual can have in their name. For example, a child could have one RESP plan set up by parents, a separate plan set up by grandparents, and yet another one set up by an uncle or aunt. Regardless of how many plans there are, the total lifetime contribution limit of $50,000 still applies. It is up to the subscribers of each plan to coordinate their contributions to ensure that lifetime limits are not exceeded.
People of any age can be the beneficiary of an RESP, but the benefits of government grants are only applicable to children under the age of 18. Furthermore, to be eligible for the 20% top-up, the government requires that you start to save in your RESP before the end of the calendar year in which the child turns 15 years old (the grants are designed to encourage long-term savings, so the government doesn’t want you to wait until that last minute to save).
Once the child has reached 16 or 17, contributions will only receive the Canada Education Savings Grant top-up if at least one of the following two conditions are met:
at least $2,000 was contributed to (and not withdrawn from) the child’s RESP before the end of the calendar year they turned 15
at least $100 was contributed to (and not withdrawn from) the RESP in at least four of the years before the end of the calendar year the child turned 15
You can sign up for a Flex First RESP before your child is born, which is an amazingly good decision considering that once you have a newborn in the house, you will have plenty of other things on your mind. Simply sign up within 90 days of your due date and we’ll get the RESP ready to go. Then, once your child is born just provide us with a few last pieces of information (e.g. birth date, etc.) and we’ll finish the application process. You’ll be thankful you checked that off the to-do list pre-baby! You’ll also need to provide a Social Insurance Number for the child within 18 months of the date of birth.
You can continue to contribute to your RESP for up to 31 years after the plan is opened. Following that, you have until the 35th anniversary of the opening of the plan to use the funds before the RESP expires.
What happens to the funds after a plan expires?
If your plan expires with funds remaining, here’s what happens:
The money that the government contributed (e.g. from the Canada Education Savings Grant or Canada Learning Bond) will be returned to the government
Personal contributions will be returned to the plan subscriber (i.e. the person who opened the RESP)
Income earned in the RESP (e.g. interest) will be returned to you if all of the following are true:
All beneficiaries of the plan are at least 21 years old and are not eligible for an Educational Assistance Payment;
The subscriber is a Canadian resident; and
The RESP was opened at least 10 years prior to it expiring.
If the above is true, the money is withdrawn as an Accumulated Income Payment, which can carry a pretty stiff tax penalty (your regular income tax rate, plus an additional 20 percent). For that reason, many subscribers prefer to transfer those funds to their Registered Retirement Savings Plan (RRSP) provided that they have contribution room. For more information on how to withdraw smartly, visit our Withdrawal Rules + FAQs section.
The government grants in your RESP were provided with the understanding that those funds would be used for postsecondary education. When it’s time to withdraw, you’ll need to prove that your student has enrolled, and then you can proceed to withdraw the funds you need. We show you how to do this and more on our Withdrawing from your RESP and Withdrawal Rules + FAQ pages, so be sure to check those out.