RESP – My Suggestion For A Better RESP Program

This is the last post of the Big RESP Series. See the previous post on Keeping It All In Perspective.

One of the problems with RESPs is the number of rules surrounding them. This creates a product that is very expensive to administer for the RESP providers and government and very hard to understand for the average parent. Since the rules in their current form (more or less) have been around since 1998 and the government and financial companies have already created their systems and processes for these accounts there is not much point in changing them now. However, I’d like to put forth my ideas on how the RESP program should have been done.

One of the complicating factors of RESPs is the lifetime and annual limit on contribution grants. Because of this, the financial companies and government have to keep track of all the contribution amounts and for family plans, the allocation between beneficiaries.

A better way to do RESPs might have been to just offer tax free accounts ie you make contributions [edit] with no tax rebate [edit] , the investments grow tax free and then upon withdrawal the money is taxed in the hands of the student or if the student doesn’t go to school then it’s taxed in the hands of the subscriber as normal income (no AIP) tax.

What about the grant money you ask? Good point – take the money that would have been paid out in contribution grants and just hand it out to children of a certain age which is similar to Alberta’s ACE program. For example the government might give $100/yr to every child under 10. These grants would have to be put into RESP accounts and would be subject to the normal withdrawal rules outlined above.

Another option with the grant money would be to just give it to students who are actually in or about to start school. That way there are no grants to track and no investments accounts.

One of the benefits of this new RESP would be that it would cost the government the same amount of grant money, both the government and investment companies would benefit from lower administrative costs and lower income people can participate more easily. Currently it’s more middle and higher class people who get the biggest benefit from the RESP program but they are not the ones who need it as much.

That’s it for the RESP series so hopefully you enjoyed reading and learning from it (I know I did) and can use it for reference in the future.


RESP – Keeping It All In Perspective

This post is part of the Big RESP Series. See the entire series here.

See the previous post on How To Get Started.

Since the government started giving grants for RESP contributions in 1998, the RESP program has become quite well known and has become a new source of stress for new parents. I know a lot of friends who have set up RESPs for their kids which is great since most of my friends are older parents and have reasonably good finances. For someone who is younger and/or doesn’t have great finances, RESPs should probably be a lower priority to things like lowering debt and saving for retirement. It’s important to make sure your own finances are in good shape before saving for a future expense when you don’t know how much that future expense will be or if it will even occur. There is no point in making RESP contributions and then later on you have to withdraw the money to pay for the mortgage.

Try not to listen to the hype from investment companies – the same people who write the ads that try to scare you into investing with their company (you need 70+% of your income to retire or you will be living in a cardboard box) also create the ads for RESPs. Investment companies often come up with fairly “worst case” scenarios for their projections of how much post secondary education will cost in 18 years or so. They try to make it sound like your child’s education will cost a certain large amount and if you don’t have that much saved up when they finish high school then they won’t be able to go on to post secondary school.

The reality is that most parents (hopefully not me) are still working when their kids go to school so they always have the option of diverting some of their income to make up any shortfall. The investment company ads also don’t seem to include the fact that most students work during summers and can offset a portion of their schooling that way. The last point I want to mention here is that like most things in life, post-secondary education involves choices that cost more or less money. If a student can live at home and go to school, that is much cheaper than going to school in a different city. The student may not like that choice but sometimes money (or lack of) can help simplify the decision making. Other factors that I can think of are housing – do they live in a dorm, shared accommodation or their own apartment? Do they have a car? All these choices will play a significant role in the amount of money required for the students education.


RESPs are a good thing but they are not as important as your family finances. You are not doing the child any favours by maxing out the RESP grants but they can’t participate in some activites because you don’t have enough money.

Establish your family finances first, then worry about the RESPs. You can carry forward the contribution room so there is no rush to start the account as soon as the child is born.


How To Open Up An RESP Account For Your Child

One of the big questions that most investors have once they decide to open an RESP account is how and where to do it.

Here are some options – please note you need a SIN for the child to open an RESP:

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The best option if you want to do the investments yourself is to open up an account with TD and invest in their e-Series index funds. These index funds have the lowest MERs (costs) of any funds in Canada so they are a pretty good deal. This account has no annual fees either. The idea with these funds is to do a basic couch potato portfolio. Please note that the TD e-Series accounts do not support the additional CESG grants or CLB for lower income families.  To get those extra grants, a regular TD mutual fund account can be utilized.

This post describes the exact procedure to get this set up. Basically you open up a TD mutual funds resp account and then apply to convert it to a TD e-Series account and then makes your purchases. Here is another post on getting started and please check out my asset allocation post on this subject. This post contains a sample RESP portfolio using the e-Series funds and includes the exact fund names as well. Thanks to the Canadian Capitalist for doing all the leg work on the TD accounts.

Another option for DIYers is to open up a discount brokerage account. You can see a comparison table of the various Canadian discount brokerages. One advantage of these accounts is that you can buy Exchange Traded Funds which are even cheaper than the TD index funds, however you will only be able to purchase them infrequently, otherwise the transaction costs will make them too expensive.

Financial Advisor

If you don’t feel comfortable setting up an account and investing on your own, and don’t mind paying more money in fees then you can usually get an RESP account setup at your bank or with a financial advisor. Try to watch the fees since most resp accounts are charged an annual administration fees.

Pooled Plans

Pooled or group plans are run by resp providers and should be avoided. They have very high fees and a strict contribution schedule with onerous penalties if you don’t keep to the schedule or the child doesn’t go to school. If you are already enrolled in one of these plans then you should continue with the plan, it’s not worth the penalties to switch out. These plans are not that bad but there are much better choices available.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.


RESP – A Comparison to Non-Registered Accounts

This post is part of the Big RESP Series. See the entire series here.

See the previous post on Individual and Family Plans

I did an analysis of some different resp and non-registered account scenarios (child goes to school or not) in order to determine the different amounts of money that would result from each scenario. The idea was to try to see how well the resp does in the different situations compared to putting the money in a non-registered account. Thanks to the Money Gardener for the idea.

The spreadsheet showing all the calculations is here. Basically it’s an account with $150/month contributions into an equity security. In real life an investor might switch to a more conservative portfolio later on but I decided to keep it simple for this example.

Some assumptions

The equity return is 0.5% per month which works out to just over 6% per year, it also gets a 2% dividend at the end of each year. The dollar figures were calculated at the 18 year mark which is when the student would normally be going to school.

The average tax rate on the withdrawal of the subscriber who is working is 40%, subscriber who is retired is 15%


  1. RESP account – student uses the money for school. This scenario is the typical “hoped for” scenario where the student uses the money to go to school. I assume that the student doesn’t pay any income tax on this money. All dollar figures are future dollars.
  2. RESP account – subscriber collapses plan before retirement. If the child doesn’t go to school then the subscriber will pay the marginal tax rate on the income in the account.
  3. RESP account – subscriber collapses plan during retirement. In this case the student doesn’t go to school but since the subscriber is retired they have a lot more flexibility with respect to income tax rates. Keep in mind that the plan doesn’t have to collapsed until the 26th year of it’s existence so there is time to do this option even if you are working when the child decides not to go to school.
  4. Non-registered account – money is withdrawn before retirement. For non-reg accounts since the money is always taxed to the owner of the account it doesn’t matter whether the child goes to school or not – the taxation is the same.
  5. Non-registered account – money is withdrawn during retirement. In this case the capital gains paid by the account owner will probably be less than when they were working.


Scenario #


Amount of $$

1 RESP account – student uses the money for school.


2 RESP account – subscriber collapses plan before retirement.


3 RESP account – subscriber collapses plan during retirement.


4 Non-registered account – money is withdrawn before retirement.


5 Non-registered account – money is withdrawn during retirement.



If the child goes to school then the RESP account is the clear winner with a total of $87,556. The non-reg account would only provide $66,953 or $62,284 depending on if the account owner is retired or not. This is not surprising considering the 20% grant available to the resp as well as the zero tax drag during the accumulation phase.

If the child does not go to school then the results are dependent on if the subscriber is working or retired when the plan is collapsed. If the subscriber is retired then there is not much difference between the resp ($64,039) and non-reg account ($66,953). If the subscriber is working, then the non-reg ($62,284) fares quite a bit better than the resp ($51,870).


If your child goes to school then the RESP account will have about 30% more money than the non-reg account. If the child does not go to school then the non-reg account will have 5% more money than the resp if the subscriber is retired, if subscriber is working then non-reg account will have about 19% more.

Bottom line is that if you are an older parent (like me) and are pretty sure that you’ll be retired (or can control your income) by the time the resp plan is 26 years old then the resp is the winner hands down. If you are a younger parent then the choice is not so clear, although there is a big upside (30%) to the resp, there is also a significant downside (19%) if the child doesn’t go to school.

Things to think about

Commander T pointed out that if you transfer the non-contribution portion of a collapsed RESP to your rrsp (if you have the contribution room) then you can avoid the 20% penalty. I personally don’t plan to have this much room, but this is a great strategy if you can do it.

One strategy to think about if you are a younger parent is to wait a few years before starting the resp account since that’s when the clock starts ticking on the age of the account. If the child doesn’t go to school then collapsing the resp plan when you have no other income will reduce the income tax considerably. Most younger parents have mortgages, rrsp room so waiting a few years to start the resp is probably a good idea anyways.

How many kids? Having two or more kids will improve the odds that the resp money will get used since you can transfer between beneficiaries. This generally only works if the older child doesn’t go to school or they are very close in age.


Establishing a trust for your child is another method of funding their education and saving taxes. The reason I didn’t get into trusts here is because I consider them a completely different animal compared to non-reg accounts and RESPs. Unlike RESPs and non-reg accounts where the parent owns and invests the money and controls the account all the way through the process, with a trust you give the child the money and will never get it back. My problem with this is that if the kid doesn’t go to school then I don’t want him to get any of the education money since he probably doesn’t need it. This is not to say I wouldn’t help him out if he needed it. The other problem I have with trusts is that it might encourage the child not to go to school. Think about it, if you are 18 and have a trust account with $50k in it and you have a choice between going to school or buying a fancy sports car or travelling the world for a few years – which would you choose?


RESP – Individual and Family Plans For 2020

There are two types of resp accounts that you can have: individual and family. This post will outline some of the rules and differences of these account types.

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Individual Plan RESP

Individual plans can only have one named beneficiary. The beneficiary can be any individual named by the subscriber including the subscriber (Individuals can open RESPs for themselves). There are no age restrictions on this type of account, however CESG and other grants can only be paid to beneficiaries under the age of 18. The beneficiary on the account can be replaced by anyone else but if the new beneficiary is not blood related to the subscriber then any CESG (grants) have to be repaid. The last contribution date is the end of the 21st year of plan’s existence. Plan has to be collapsed during it’s 36th year.

Family Plan RESP

Family plans can have one or more beneficiaries. The beneficiaries must be connected to the subscriber by blood or adoption. This includes children, grandchildren or siblings of the Subscriber, either by blood, adoption, or marriage. The beneficiaries must be under 21 years old when named.  Beneficiaries can be removed or added anytime during the life of the plan.

If there is more than one beneficiary then the contributions have to be allocated to each beneficiary. For example if you have twins you might set the allocation at 50% for each child. If you have two kids that are different ages and you don’t set up the resp until the second child is born then you might choose to allocate more of the contribution to the older child in order to catch up on their contributions.

One rule which is always in effect for both types of plans is the maximum lifetime grant amount of $7200 per child. If you have a situation where both of your children have received the maximum grant and you want to transfer some of the contributions to a different beneficiary then you will lose the corresponding grants. This also applies to transfers with individual accounts as well.

So which is better? Family or Individual?

If you only have one child then the individual account is the obvious answer. For multiple child families it may appear at first glance that family accounts are more flexible than individual accounts however in fact they are pretty much the same thing, because the rules allow transferring money between any type of accounts. In case one of your kids doesn’t go to school, it doesn’t matter whether you have your kids in a family account or individual accounts since you are allowed to transfer money to the kid(s) who are still going to go to school in either case. I would suggest that family plans are slightly better if you have more than one child mainly because it will save on account fees and it might simplify the paper work a bit. Bottom line is that it doesn’t really matter so pick the cheapest and most convenient option.

Tip – If you have one child, you can set up a family account for future expansion

Multiple RESP accounts for same beneficiary – Communicate!

When setting up a RESP for a child, it’s important to communicate with other relatives and friends who might have also set up a resp for the same beneficiary. The government will add up all the contributions attributed to each beneficiary in order to enforce the various grant limits and maximum amounts. This applies to any RESP accounts set up for a beneficiary – it doesn’t matter if they are set up in different financial institutions by different subscribers.

You might be wondering why someone would set up an RESP for a relative (ie nephew) rather than give the money to the parents to set up an RESP? For one thing, if that parent is not as financially sound as you are and perhaps you don’t trust them, you might not want to give them the money directly for fear that they won’t set up the RESP account or maybe they will withdraw the money before the child goes to school. Another scenario is if the child doesn’t go to school, the money goes back to the subscriber, so you might want to make sure you get your money back in that case.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.


RESP – Asset Allocations

This post is part of the Big RESP Series. See the entire series here.

See the previous post on resp withdrawals here.

When setting up a resp account it’s important to determine and monitor the asset allocation of the account. Typically the asset allocation is determined by the risk profile of the investor and the amount of time remaining until the money is required. Equities are considered risky assets but over a longer term they are fairly reliable. If you are making an investment and you need the money in two years then equities are not advisable because there is too much risk that their value will go down over those two years. Short term bonds or a high interest savings account is a better investment for money that is required in the short term. The idea is not get superior returns but to ensure that the money is there when needed.

So if equities are a good investment over the long term but not the short term, the question has to be asked – how long is the “long” term and how short is the “short” term. I would say that short term is anything less than five years and the long term is 15 years or more. Please note that this is strictly my opinion so don’t write it in stone!

Unlike retirement planning where you don’t know how long the portfolio will be in use for, RESP planning is a bit easier since you can make a pretty good estimate of the start date of withdrawals and the end date of withdrawals.

For this example I’ll assume that the student goes to school starting the year they turn 17 and finish up four years later.
I’ll go through different stages of the resp in terms of how old the student is:

Age range

Equity %

Bonds %










In school



Once they are starting school all the money will be withdrawn within five years so it should be in very safe securities such as high interest savings accounts, short term bonds or money market funds.

If you are a more conservative investor then you might want to do the following:

Age range

Equity %

Bonds %










In school



I would invest equally in Canadian, US and EAFE for the equity portion and in short term bonds ETF or a bond index fund for the bond portion. You can add other asset classes to the mix as well. This example is intended to show a simple asset allocation.

I’ve indicated the allocations at five or six year terms. If you are really keen and plan to rebalance every year then you can also adjust the allocation every year.

Obviously none of the above allocations are perfect for every investor so try to keep in mind the idea that money which is required in the short term should be invested in safe investments and try to adapt the above suggestions to your situation.

See the next post on RESP Individual and Family Plans.


RESP Withdrawal Rules and Strategies For 2020

When the RESP beneficiary (student) is ready to go to school, the subscriber (owner of RESP account) needs to start withdrawing money from the RESP account. To withdraw money you have to provide some proof to your resp provider that the resp beneficiary (child) is going to an approved post-secondary school. You don’t have to show receipts for specific purchases.

Two types of money in the RESP account

In your RESP account, there are two different types of money: contributions and accumulated income.

  • The contribution amount is the sum of all the contributions that you made to the account over the years.
  • The accumulated income is made up of grants, capital gains, interest, dividends earned in the account.Any money that is not a contribution is considered to be accumulated income.

This distinction is important because the taxation of withdrawals from the contribution portion of the account is different than withdrawals from the accumulated income portion.

  • Contribution withdrawals are not taxed.
  • EAP (educational assistance payments) which are withdrawals of accumulated income, are taxed as income at the hands of the student.

The good news is that students have the personal exemption, as well as tuition tax credits which helps lower their tax bill. Obviously income earned during summer jobs or on co-op work terms will affect their taxes as well.Another bit of good news is that you can tell your financial institution if you are with drawing contributions or EAP (or both) so you can manage the taxes to some degree.

Please note there is no withholding tax on any kinds of RESP withdrawals, so if the student ends up in a taxable situation, they will have to pay the taxes at tax filing time.

A withdrawal limitation

First – one withdrawal rule to get out of the way – you are only allowed to withdraw $5,000 of accumulated income in the first 13 weeks. After 13 weeks, you can withdraw as much accumulated income (via EAP) as you wish.  There are no limits to withdrawals from the contribution portion as long as the child is attending school.

Basic RESP withdrawal strategy

When planning the withdrawals, try to withdraw as much accumulated income money as you can tax free.For example when the student first starts school, they will have just completed a short summer (two months) so they probably won’t have much income for the year. That might be a good time to maximize payments from the accumulated income portion of the account (EAP).

On the other hand, if the student is in a co-op program and has two work terms in one year and only one school term, that might be a good year to take out contributions rather than accumulated income.

You don’t want to end up with accumulated income in the RESP account if the child is no longer going to school.

What if your child doesn’t go to school?

What happens if Junior decides that school is not for him?  You have to collapse the plan and pay a pile of tax on it.

First of all you have lots of time to collapse the plan so don’t do it right away. It’s always possible that your child will give up on their pro hockey or musician career and will need the money for schooling later on.  You can keep the account open for 35 years after the year in which the account was opened.
If you do collapse the plan, the contributions are tax free, anything else (accumulated income) is added to the subscriber’s gross income for taxation purposes.And on top of that, the accumulated income is charged a tax of 20%.
If you are retired or have any way to reduce your income in the year you collapse a resp plan, do it to save taxes.

What if the child does more than one session at school (ie multiple degrees)?

You are allowed to use the RESP for one degree and then keep some money in the account for future education.  The only limit is the 35 year limit previously mentioned.  Be warned that it’s not a bad idea to take out all the RESP money during the first degree so that there are minimal taxes and no penalties.  If you save money in the RESP account for future degrees and the child doesn’t end up using the money, there will be increased taxes and penalties.

More RESP information

8 Things you need to know about withdrawing money from your RESP account.  Lays out the details of how to actually withdraw the money.

How to withdraw excess money from your RESP account.  Some strategies for withdrawing extra RESP money without penalty.  This applies if the student started school and quit early or ended up with extra money.

How to avoid RESP withdrawal penalties if the child doesn’t go to school.  If you child ends up not using the RESP at all – here are some ideas to avoid penalties and taxes.

More RESP information – Comprehensive list of RESP articles on this site.


RESP – Additional Grants Eligibility And Canada Learning Bond (CLB) For Lower Incomes

The regular RESP grants (CESGs), calculated at 20% of contributions, are available to all eligible Canadians regardless of their individual or family income. It doesn’t matter whether you earn $20 a year or $2,000,000 a year – you still qualify for the basic RESP grants.
Besides the 20% basic grant, the government offers additional grants based on family income.
There are a large number of middle (and lower) income Canadians who are eligible for these additional grants – and probably don’t know about it.

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The income levels for additional grants apply to the primary caregiver of the child and not the person who opens the account.

These additional RESP grants apply to the first $500 of contributions each year, unlike the normal RESP grants, which are payable on the first $2,500 of contributions per year.

There are two different income levels to qualify for these additional grants.

Families with a net income between $42,707 and $85,414 are eligible for an extra 10% grant on the first $500 of contributions each year for a total of $50 per year.

Families with a net income of $42,707 or less are eligible for an extra 20% grant on the first $500 of contributions each year for a total of $100 per year.

These income ranges are for 2012.  To get updated value for future years, please visit this CanLearn page.

The family income in this case refers to the primary caregiver, who might not necessarily be the subscriber or owner of the account.

Net income: This is the amount on Line 236 of your T1 general tax form. It is your income net of RRSP contributions, child care expenses etc.

Not all financial institutions offer additional grants, CLB or ACES grants.  Please check this list for verification.

Canada Learning Bond – no RESP contribution required . $500 initial one-time payment followed by $100 per year for 15 years – total potential of $2000.

Eligibility – If primary caregiver is eligible to receive NCBS – National Child Benefit Supplement – this supplement is generally for families with a net annual income below $42,707 .

Alberta Centennial Education Savings Grant (ACES) – No contribution required – $500 initial one time payment – 3 subsequent payments of $100 payable at ages 8,11,14.

You have to apply for the initial contribution within 6 years of the child being born and the subsequent contributions, 6 years after the birthdays. There is no income test for ACES grants.

Both the CLB and ACES grants do not require a contribution, so anyone who qualifies for them should take advantage of the program and get the grants. For the addition CESG grants, these require a normal RESP contribution to be made before getting the additional grant, so I would caution anyone who is in a lower income range to make sure that you have your own finances in order before contributing to an RESP.

Let’s look at an example!

Mary and Steve make a combined family income of $71,500 which makes them eligible for an extra 10% CESG grant on top of the regular 20% grant.

If they contribute $1000 in a year then they will get:

Normal CESG grant of 20% = $200.
Additional CESG grant of 10% on the first $500 of contribution = $50.

So the total CESG grant on their $1000 contribution will be $250.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.