What can an RESP be used for?
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Embark Student Corp.
A registered education savings plan isn’t just for tuition fees. Here’s how you can spend the money, and what happens if your child doesn’t use their RESP.
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Sponsored By
Embark Student Corp.
A registered education savings plan isn’t just for tuition fees. Here’s how you can spend the money, and what happens if your child doesn’t use their RESP.
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.
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.
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:
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.
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:
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.
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 and approved by the client.
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