Saving for Education in Canada: How RESPs Work and How to Maximize Grants

Introduction

The Registered Education Savings Plan (RESP) is one of the most valuable tax-advantaged programs available to Canadian families. It allows parents, grandparents, and guardians to save for a child’s post-secondary education while benefiting from government grants, tax-deferred growth, and strategic withdrawal options. Yet many Canadians misunderstand how RESPs work, how contributions affect grants, or how withdrawals are taxed. Mismanagement can result in missed government benefits, unnecessary tax, or funds not being used efficiently. This guide explains everything you need to know about RESPs, including contribution rules, government grants, withdrawal strategies, and how to maximize long-term growth for your child’s education.

What Is an RESP?

An RESP is a tax-deferred savings plan designed to help families save for a child’s education. The plan holds contributions, grows tax-sheltered, and pays out funds when the child enrolls in qualifying post-secondary programs such as university, college, trade school, or vocational training. Unlike RRSPs, contributions are not tax deductible. Instead, the advantage lies in tax-free growth inside the plan and government grants that boost savings.

Who Can Open an RESP?

RESPS can be opened by:
parents
grandparents
aunts and uncles
legal guardians
family friends
Any adult with the child’s Social Insurance Number (SIN) may open an account. Plans can be individual, family, or group-based.

Contribution Rules

There is no annual contribution limit, but there is a lifetime limit of $50,000 per beneficiary. Contributions do not generate tax deductions, but they grow tax-sheltered until withdrawn. Year-end planning is important because certain grants are only available for contributions made before December 31.

Government Grants: CESG and More

The major benefit of RESPs is government grant money.

Canada Education Savings Grant (CESG)

The government contributes:
20 percent on the first $2,500 contributed annually
maximum $500 per year per beneficiary
Up to $1,000 per year if catching up missed years (but only one year can be caught up at a time). Lifetime CESG limit is $7,200.

Additional CESG

Low- and middle-income families may receive extra grants based on household income.

Canada Learning Bond (CLB)

Low-income families may receive $500 for the first year and $100 per year afterward, up to $2,000 total, with no contributions required.
RESPs offer unmatched free money when used correctly.

How RESP Growth Is Taxed

Investment growth inside the RESP (interest, dividends, capital gains) is tax-sheltered while the money remains in the plan. Withdrawals consist of:
contributions (not taxable)
Educational Assistance Payments or EAPs (taxable to the student)
EAPs include grants and investment growth. Because students typically have low income, EAP withdrawals often generate little or no tax.

Withdrawal Strategy

RESP withdrawals must be planned carefully to minimize tax and ensure funds last:
use EAPs early while student is in school
withdraw contributions later for flexibility
avoid exceeding EAP limits in the first 13 weeks
withdraw strategically to avoid unused grant repayment
If the student does not pursue post-secondary education:
contributions are returned tax-free
grants are repaid to the government
growth may be transferred to RRSP (under conditions)

Investment Strategy Inside RESPs

RESP portfolios should consider:
age of the child
market volatility
education cost projections
risk tolerance
Early years may allow for higher-risk investments, while funds should shift to safer assets closer to the child’s school years.

RESP vs TFSA vs FHSA vs RRSP

Each account has different purposes:
RESP: best for education savings due to grants
TFSA: tax-free growth, ideal for long-term investments
RRSP: retirement-focused with tax deductions
FHSA: first-home savings with tax deductions and tax-free withdrawals
RESPs provide the strongest government incentives but are limited in use.

Common RESP Mistakes

not contributing early enough to maximize grants
missing the annual contribution deadline
not catching up on unused CESG room
withdrawing incorrectly and triggering grant repayment
overcontributing and paying penalties
holding overly conservative investments too early
These mistakes reduce growth and government benefits.

RESP Strategies for Maximum Benefit

contribute $2,500 annually to receive full CESG
catch up missed grants strategically
open RESP early to maximize compounding
withdraw growth before contributions to reduce tax
use multiple contributors (parents, grandparents) when possible
RESP optimization can generate thousands in extra education funding.

CRA Documentation Requirements

CRA may request:
proof of contributions
grant allocation records
withdrawal breakdowns (contributions vs EAPs)
documentation of school enrolment
RESP providers must issue annual tax slips for EAPs. Families must retain documentation for at least six years.

Mackisen Strategy

At Mackisen CPA Montreal, we help families maximize RESP benefits, plan contributions, structure EAP withdrawals, catch up on unused CESG room, and integrate RESP planning into overall family tax strategy. We ensure education savings are optimized, compliant, and aligned with your long-term financial goals.

Real Client Experience

A Montreal family recovered $4,200 in missed grants by restructuring RESP contributions. A student avoided unnecessary tax through a planned EAP withdrawal strategy. A grandparent-funded RESP was optimized to ensure grant maximization. A family repurposed unused RESP growth into RRSP contributions under allowable rules.

Common Questions

Is there a deadline for RESP contributions? December 31 for CESG eligibility. Can multiple people contribute? Yes. Are RESP withdrawals taxable? Growth portion is taxable to the student. What if the child does not attend school? Funds may be repurposed with conditions.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps families build effective education savings strategies through RESPs, ensuring maximum grants, tax efficiency, and long-term financial success.