What is RESP, and How Does it Work

You want your child to receive the best education, so you do everything in your capacity to make this happen. But higher education is getting costlier, and sometimes it gets tough to save the amount.

RESP can help you with this. It offers you the power to invest and have returns along with a tax-advantaged account utilized for your child’s benefits.

What is RESP?

RESP or Registered Education Savings Plan helps you in saving for post-secondary education of your child. While you add money to this account, it grows over some time. By the time your child starts his university education, he can take money from it to support his education.

Saving in RESP can begin as soon as your child takes birth. All you need to do as parents is to get the Social Insurance Number for your child. It is required for registrations of RESP to the SIN. Knowledge First Financial Reviews believe that you should get it as soon as possible.

One of the best features of RESP is that several people can contribute to RESP. All friends and family are allowed under law to provide to the welfare of the child’s future. For the purpose, you can ask them to make a contribution to the account rather than buying any gadgets or toys for holidays and birthdays.

RESPs have a similarity to TFSA and RRSP. They are similar as both include several investment products to a government plan to encourage more saving and also shelter tax. It should be noted that there is no tax deduction for the contribution made to RESP just like you do with RRSP contribution. In this regard, RESP resembles TFSA more. One does not receive a tax deduction in any form. However, no tax is withheld when one withdraws money from it.

How Does An RESP Work?

RESP is a contract between a person (known as a subscriber) and an organization or a person (the promoter).

When under the contract, the subscriber will name one or more beneficiaries (child/children who will receive education in the future) and promises to pay for them. The promoter is responsible for paying educational assistance payments (EAPs) to the beneficiary/beneficiaries.

Two types of RESP are available: Specified plans and family plans

Understanding the Terms

Subscriber (or an individual acting for the subscriber)

Typically, he is the one who contributes to the RESP. A subscriber cannot deduct the contribution from his income for income tax or any benefit return.


He pays all the contributions, including the income made on those contributions. It goes to the beneficiaries. The money so earned is paid and is called educational assistance payments (EAPs).

If by any chance, no contribution is made to the beneficiary, the promoter will pay them to the subscriber towards the end of the contract. These subscribers are not allowed to include any contributions to their overall income when they receive it back.


They receive all the contributions. It includes EAPs from the promoter as well. They are required to add the EAPs to their income for the financial year they receive it. But they don’t have to add contributions to their income.


The Canada Revenue Agency will register the education contract as an RESP. Some lifetime limit is set by the Income Tax Act on the amount to be contributed to the higher education of each beneficiary.

If the RESP is a specified plan, then it is determined that no contribution would be made to the plan (savings) at any given point of time after time expires. It is generally the 31st year of opening of the plan. Moreover, the plan must complete at the end of the 35th year of opening of the savings plan.

How Does An RESP Work?

A subscriber signs an RESP contract along with the promoter. He names a beneficiary or sometimes more than one.

Subscriber contributes towards the RESP; if applicable, government grants are paid for the RESP. These grants include Canada Learning Bond (CLB), Canada Education Savings Grant (CESG), and other recognized provincial education savings program.

The promoter looks after every contribution made towards the RESP. Till this income is in the RESP, there is no tax levied on it. He is someone who ensures that all the payments are made under the terms laid down initially.

· The promoter can even return contributions made by the subscriber tax-free

· The promoter will make payment to the beneficiary to finance his higher education.

· The promoter can even make payments on his accumulated income.

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