RESP at a glance

An RESP is a tax-sheltered savings plan designed to help you save efficiently for a child’s post-secondary education.

Provided certain conditions are met, anyone – parents, guardians, grandparents, other relatives and friends – can open an RESP account for a child and contribute up to $50,000 [1] to it. All it takes is your social insurance number (SIN) and one for the child whose education you are saving for.

For more information on how to obtain a SIN, please visit Service Canada.

Tax-free investment growth

As with a Registered Retirement Savings Plan (RRSP), income earned in an RESP account is not taxable while it remains in the account. The income earned through an RESP (not the capital, only the grants and the return earned on the total investment) is taxable only when it is withdrawn from the account. At that point, it is usually declared by the student, who generally has little or no taxable income, and therefore pays a relatively low tax rate. It is important to note, however, that unlike RRSPs, contributions to an RESP are not tax deductible.

Special government education incentives

Federal and Provincial government grants are available depending on the amount you contribute and your net family income. In Quebec, for example, the combined grants can represent at least 30% of the annual contribution, plus certain amounts in the case of lower-income families. That's like getting a 20-30% return on your investment right off the bat!

Please be sure to visit the Grants section of this site for full details.

Not convinced yet? Consider the following scenarios.

  • Scenario 1: an investor contributes $200/month for 18 years to a non-registered investment account for a total investment of $43,200.
  • Scenario 2: an investor contributes the same amount ($200/month for 18 years for a total investment of $43,200) to an RESP.
 
 
The benefits of an RESP
 

Assumptions:

  • 30% applicable tax rate
  • Investment growth is taxed 100% as income at the applicable tax rate.
  • Contributions are made at the beginning of each year and compounded at an annual 5% return.
  • For simplicity, only the Canadian Education Savings Grant (federal grant) is considered in this illustration.

The effects of taxation and government grants are staggering. The RESP account has accumulated over $25,000 more in education savings than the non-registered investment account.

[1] A monthly penalty of one percent will be imposed on any excess contributions.

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Legal notice

This communication does not constitute an offer or a solicitation of any nature in any jurisdiction in which such an offer or solicitation would not be authorized or to any person to whom it would be illegal to make such an offer or solicitation. The information contained in this Web site does not constitute specific advice of a financial, legal, accounting or fiscal nature concerning investments.

The information contained in this communication is subject to change without notice, and Services d'investissement FÉRIQUE and Gestion FÉRIQUE may not be held liable for any inaccuracy or omission in the information provided. The user expressly acknowledges and accepts that neither Services d'investissement FÉRIQUE, nor Gestion FÉRIQUE nor their employees or agents may be held liable for any damage that may have been caused directly or indirectly by the use of information contained in this site.

Please note: There may be management fees and expenses associated with investment in the Funds. Management expense ratios vary from one year to another. Please read the prospectus before investing. Mutual funds are not guaranteed, their values fluctuate frequently and past performance may not be repeated. FÉRIQUE Funds are distributed by National Bank Securities Inc., as Principal Distributor, and by Services d'investissement FÉRIQUE.

The FÉRIQUE RESP Calculator is licensed by EquiSoft, Inc.

The following sources were used in preparing this website:

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