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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert

By Robyn K. Thompson  | Friday, August 24, 2018

Q – Our eldest daughter will be going on to university next month, and we’re looking to fund some of her tuition from a Registered Education Savings Plan that was set up for her about 15 years ago. However, we’ve heard stories in the news recently about people who find they have lost their money because they didn’t follow the rules of the plan. Would you explain the withdrawal rules for RESPs. – Melinda C., Thornhill, Ontario

A – When an RESP matures, the beneficiary of the plan (usually the child for whom the plan was opened) can withdraw the funds for post-secondary tuition. Because they will likely be in a very low tax bracket, little or no tax will be payable on the withdrawals. That’s what makes starting an RESP early so attractive.

Anyone may open an RESP for a child, provided the child has a Social Insurance Number. Typically parents and grandparents open RESPs when the child is very young (often grandparents will gift a newborn with an RESP). Funds invested in the plan grow tax-free until withdrawn to pay for tuition. There is no annual limit for contributions, but there is a $50,000 total lifetime limit that can be contributed for a single beneficiary. Excess contributions are subject to tax at a rate of 1% per month, so it’s important to keep track of who is contributing what amounts to a given plan.

It’s important to choose the RESP that’s right for you. You can open a self-directed RESP at most financial institutions. A number of RESP promoters also offer group plans. In either case, it’s absolutely vital that you are aware of the contribution rules in general. In the case of group plans, you must be aware of any rules that the promoter has set out that apply to their plan in particular, especially those that relate to frequency or size of contributions, fees, penalties, and withdrawal rules. Bear in mind that an RESP is not like a savings account or an ATM machine. Once you sign up, you are legally required to follow the rules, just like an RRSP or TFSA.

One key feature of the RESP is the Canada Education Savings Grant (CESG), which is a grant made by the federal government amounting to 20% of annual contributions to all eligible RESPs to a maximum $500 (up to $1,000 if there is unused grant room carried forward), to a lifetime limit of $7,200. There is also an additional CESG amount available on the first $500 contributed to an RESP, ranging from 40% to 20% depending on family income.


Students can begin receiving payments (called Educational Assistance Payments, or EAPs) towards tuition from the RESP as soon as they are enrolled in a qualified post-secondary educational program, including colleges and universities, apprenticeship programs offered by trade schools, and CEGEP in Quebec. For Canadian residents, the payments consist of funds contributed to the RESP and earnings on those funds, the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB) for eligible students, and any provincial savings programs the student may be eligible for.

A university or college outside Canada qualifies as a post-secondary institution eligible for EAPs, provided the student has been enrolled full-time in a course of not less than three consecutive weeks and remains a resident of Canada.

But in order to receive the Canada Education Savings Grant or Canada Learning Bond as part of the EAP, a student beneficiary must be a “resident” of Canada. Residency requirements may also apply for provincial grants and incentives.

So what qualifies as “residency”? Even if you are a Canadian citizen, the Canada Revenue Agency stipulates that you are a non-resident for tax purposes if you normally live in another country and are not considered a resident of Canada. You are also considered non-resident if you not have significant residential ties in Canada and you live outside Canada throughout the tax year or you stay in Canada for less than 183 days in the tax year. This will be important for parents or grandparents whose Canadian-citizen children live abroad.

In the case of grandparents looking to set up RESPs for grandkids living in the U.S., it appears they’re out of luck. To qualify for RESP benefits, the grandchildren would have to be residents of Canada at the time the RESP is set up, and they would need to have Canadian Social Insurance Numbers. They would also have to be residents of Canada to qualify for the CESG and be eligible for other grants and incentives. And they would have to remain residents of Canada to receive the full EAPs for attending a post-secondary school outside Canada.

As for choosing the best types of RESPs, it makes sense to discuss various plans with your independent financial advisor – that is, one who isn’t tied to any particular RESP promoter. Given the recent news stories of people who thought they had lost their RESP savings because they didn’t read the fine print about making regular contributions through the years, an analysis and review of your education savings goals by an unbiased third party before you open a plan is critical.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at for a confidential planning consultation.

Notes and Disclaimer

© 2018 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

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