What can an RESP be used for?
A registered education savings plan (RESP) is a long-term investment strategy that allows parents, grandparents, family members and friends to help pay for a child’s future university or college education or job skills training.
Tuition fees are often top of mind, but the funds you save inside an RESP can be used for much more—they can pay for any education-related cost, from a new tablet to a transit pass.
How does an RESP work?
An RESP is a type of registered savings account that offers tax-deferred growth, partial contribution matching from the government, and additional grants to help families save for a child’s education.
When you tally up tuition, books, technology, room and board, and other expenses, the cost of a post-secondary education can be pricey. According to Statistics Canada, full-time undergraduate tuition fees for the 2022–23 academic year averaged $6,834, and professional degree programs ran as high as $23,963 (for a degree in dentistry)—and that’s just for one year.
It’s hard to predict exactly how much the cost of higher education is going to rise by the time your preschooler hits their post-secondary years, but it’s sure to increase. By some estimates, kids starting college or university in 2030, for example, could be looking at over $55,000 to complete a four-year degree—and that’s if they live at home! (For a personalized projection, check out this helpful calculator tool from Embark.) It’s so important to start saving for school as soon as possible.
What can RESP withdrawals be used for?
The good news is that as long as the cash is for educational purposes, pretty much anything goes, including studying abroad. Here’s a comprehensive list of what your RESP savings can pay for:
- School supplies, including books, laptops and tablets
- Dormitory meal plans
- Transportation to the college, university or school
- Student athletic or activity fees
- Residence fees or rent
- Other related living expenses
- Tuition fees for recognized post-secondary educations, including colleges, universities, technical programs and vocational schools
- Tuition for a variety of specialized training institutes, such as private naturopathy programs, aesthetics schools, the Canada’s National Ballet School and truck driver training centres, for example
- Tuition fees for qualified schools around the world
Types of RESP withdrawals
You can start using funds from an RESP for educational purposes as soon as your child graduates high school and is officially enrolled in a qualifying post-secondary educational program at a college, university or trade school.
There are several ways to access the funds in your RESP. It can be a bit involved, particularly if you’re converting investments into cash, so it’s best to start the process a month or two before the first tuition payment is due.
Withdrawals of the contributions you’ve made are called Post-Secondary Education Payments (PSE) and are returned to the subscriber (that’s you). Withdrawals of investment earnings and government grants are called Educational Assistance Payments (EAP), and they’re paid to the beneficiary (your soon-to-be college, university or trade school student).
There’s no limit on PSE that can be withdrawn, but there is a limit on EAPs: $8,000 for full-time enrollment and $4,000 for part-time enrollment during the first 13 weeks that school is in session. Once this time has passed, you can cash out as much EAP as you need if the beneficiary is enrolled in full-time studies for 13 consecutive weeks during a 12-month period.
While the original RESP contributions you make over the years won’t be taxed, the money you earn inside an RESP (from grants, bonds, dividends, capital gains and interest) are considered taxable. Your child pays tax on this income, but fortunately that amount may end up being little to nothing, as students are usually in a very low tax bracket.
What happens to unused RESP money?
Sometimes, life has other plans. If your child decides not to attend a post-secondary school following their grade 12 graduation or doesn’t graduate, you have options for your RESP investment:
- You can transfer an individual RESP to a sibling. A brother or sister can benefit from the savings with a penalty-free transfer, with a few conditions (for example, the sibling must be under age 21). If you already have a family RESP in place, the other sibling(s) can use the funds, including grants, sometimes in full. Single-child family? See the next two points.
- You could transfer the RESP to a registered retirement savings plan (RRSP). You can move income earned of up to $50,000 to an RRSP—provided there is contribution room—and claim a tax deduction. To do this, all beneficiaries must be at least 21 and not seeking higher education, and the RESP must have been open for at least 10 years. Your financial institution will return any grants to the government. Unfortunately, if you close an RESP without using it for your child’s education or transferring the money to an RRSP, you will pay taxes on its investment earnings.
- You can keep the RESP open. Your child might decide to pursue further education down the road. RESP accounts can remain open for up to 35 years, which gives young adults plenty of time to pick a university, college or apprenticeship program that’s right for them.
Get some guidance on using RESPs
Many families manage RESP contributions, investments and withdrawals on their own, but if you would like more guidance and support, you can work with a financial professional. The education savings experts at Embark can help you plan your RESP contributions and maximize government grants. They can also help you understand all the ins and outs of using RESPs, including withdrawals and what you can use them for.
Check out Embark’s special offer, exclusive to MoneySense readers: Start an account using the promo code MONEYSENSE100 and it will contribute $100 to your child’s education when you save $200. Visit Embark* for details.
This article is sponsored.
This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers.
Read more about RESPs:
- The top 5 questions about RESPs
- How much money does the government contribute to an RESP?
- RESP vs RRSP and TFSA: What’s the best option for education savings?
- What is an RESP?
- What to do when you have insufficient or unused RESP funds
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