You don’t have to be a child’s parent to open a Registered Education Savings PlanRegistered Education Savings Plan A savings plan that helps you save for a child’s post-secondary education. The money that you save in the plan grows tax-free.+ read full definition (RESPRESP See Registered Education Savings Plan.+ read full definition). RESPs hold savings for a child’s education after high school. Parents often open RESPs for their own children, but anyone can start an RESP for any child.
Why open an RESP for a child
You can support a child in your extended family, or the child of a close friend in your life, by opening an RESP in their name. A common example is a grandparent opening an RESP for a grandchild. It can be a nice way of investing in a child’s future. And RESP contributions can become a recurring gift at birthdays or holidays.
The earlier you start contributing, the more time the RESP will have to grow interest. You can also use the RESP as a chance to teach the special young person in your life about how investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition savings can grow.
A child can have more than one RESP
There are no limits on the number of RESP accounts that can be opened in a child’s name. This means you can still open an RESP for a grandchild, even if an aunt has already done so.
There are, however, limits on how much money can be contributed per child, across all the RESPs in that child’s name. The lifetime limit is $50,000. If you over-contribute, you (the subscriber), will be required to pay taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on the over-contributionContribution Money that you put into a savings or investment plan.+ read full definition amount until it is withdrawn from the RESP.
Learn more about RESPs and the roles played by subscribers, beneficiaries, primary caregivers, and providers.
What you need to open an RESP
You can open an RESP for a child, even if you’re not the child’s parent. You should still talk to the child’s parent or guardianGuardian A person that you give the legal responsibility to care for a child or adult who cannot take care of themselves. There are different types of guardians for property or health.+ read full definition before opening the accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition, as they will need to provide the child’s social insurance number. They will also need to consent to family income testing to determine eligibility for the Canada Learning BondBond A kind of loan you make to the government or a company. They use the money to run their operations. In turn, you get back a set amount of interest once or twice a year. If you hold bonds until the maturity date, you will get all your money back as well. If you sell…+ read full definition and Canada Education Savings Grant.
The person opening the RESP is called the subscriber. This person must:
- select a Registered Education Savings Plan and names an eligible beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition.
- provide a social insurance number and certify eligibility conditions have been met.
- request the Canada Education Savings Grant (basic and Additional), the Canada Learning Bond and/or provincial grants and complete the application forms.
- direct Educational Assistance Payments to an eligible beneficiary.
- inform the RESP provider of any change to a beneficiary’s status.
If the child doesn’t go to higher education
RESP accounts can stay open for up to 36 years. This means that even if the RESP beneficiary doesn’t go on to higher education directly after high school, you can wait to see if they change their mind.
If you are sure the money will not be used by the beneficiary in the future, you have other optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition to consider:
- Transfer the RESP to another child
- Transfer the RESP to an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition
- Close the RESP
If you decide to close the RESP, your own contributions are returned to you. You will have to pay taxes on the money that you earned as interest in your plan. You must also return any government grants that were contributed to the account.
Read more about your options for what to do with an RESP if the child doesn’t go on to higher education.