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 RESP
CST Special Edition

by Michael McCullough

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 RESP For Dummies®, CST Special Edition

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 IN THIS CHAPTER
»» Knowing the importance of post-
secondary education

»» Considering the costs and how

families pay

»» Exploring RESPs to help you save more

money, faster

Chapter 1
Giving Your Child the
Freedom to Dream

F
or parents and caregivers, it’s often humbling to see the
potential in their children. Early on, they might show a knack
for building structures, inspiring group activities or solving
problems. The beauty of this realization is that you have the time
to plan ways to nurture those talents, ensuring that one day
they’ll lead productive careers that are fulfilling to them. The key
enabler of that is post-secondary education.

But higher education requires planning. It’s the biggest cost a

typical family will face after buying a home and saving for retire-
ment. It’s also the greatest gift parents can give to their child, and
the most valuable investment in their future.

Looking at Canada’s Post-

secondary Landscape
Post-secondary education is increasingly necessary in today’s
employment market. Three-quarters of job openings in ­Canada
will require it, according to the BC Labour Market Outlook report
(2023). And there’s no denying the link between higher education

CHAPTER 1 Giving Your Child the Freedom to Dream 1

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 and financial well-being. In studies by Statistics ­Canada, univer-
sity graduates reported higher job satisfaction than high-school
grads. They even live longer on average and enjoy better health.

Calculating the cost of post-

secondary education
According to Statistics Canada, the average tuition for a full-time
undergraduate student at a Canadian university for the 2023-24
academic year was $7,076. But that’s just the start. Most under-
graduate programs take four years, and graduate tuition typically
costs more. Students have books to buy and transportation to
take. If your son or daughter is studying away from home, room
and board will push that annual cost above $20,000. And if your
child ends up at an American university, it could easily be double
that amount or more.

A 2024 projection by CST pins the cost of a four-year university

­program in Canada at $78,000 for a student living at home, and
$192,000 for a student in residence by 2042.

(Projected tuition costs of a 4-year university program are based on the annual average cost
of tuition and compulsory fees across Canada for the previous school year and an assumed
average annual increase of 1.1% based on the previous 5 years’ average. Room and board are
based on typical costs for residence with an average annual increase of 2.8% based on the
previous 8 years’ average. Projection includes the cost of entertainment, transportation, and
books, adjusted using an annual inflation rate of 2.5%. Source: Statistics Canada 2023 and
university websites.)

Tapping into typical sources of funding

How do students and their families pay for post-secondary edu-
cation? Typically, they tap a mix of the following sources:

»» Employment income
»» Student loans
»» Scholarships and bursaries
»» Education savings
Most of these funding sources have drawbacks, however. Student
loans can leave the graduate with eye-watering debt at the end

2 RESP For Dummies, CST Special Edition

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 of their program; the average for a bachelor’s degree holder is
$30,600 (Statistics Canada, 2024).

R-E-S-P: Find Out What it Means to Me

The founders of CST believed that all Canadians should have the
freedom of choice and that meant having access to education after
high school. They collaborated with the Canadian government
to create an education savings plan to help families overcome
the financial barriers to education. Today, the federally backed
­Registered Education Savings Plan, or RESP, has been supporting
parents in saving for their children’s education for over 50 years
(Library of Parliament, 2004). An RESP offers both tax advantages
and eligibility for government grants that will see your education
savings pile up faster than they would in an unregistered account.

Why an RESP?
Unfortunately, some parents don’t know about RESPs or, by the
time they find out about them, they think it’s too late to start one.
Although 92% of respondents to a 2021 Canada Life survey had
heard of RESPs, less than half (49%) of those aware of the savings
tool were using them.

The best way to save for post-secondary education is to start

early. Here’s why:

»» Smaller payments have time to grow into bigger savings.

»» Savings get compounded, giving you earnings on earnings.
»» You can attract the most grant money possible. To obtain
the maximum $7,200 in Canada Education Savings Grants
for your child, you need to contribute at least $2,500 per
year over 15 years.

What makes an RESP an RESP?

An RESP is a type of savings or investment account that’s regis-
tered with the Canada Revenue Agency, offering its holders and
future scholars tax advantages. It can be opened by anybody (par-
ent, grandparent, uncle, and so on, referred to as the subscriber)
on behalf of a child or beneficiary.

CHAPTER 1 Giving Your Child the Freedom to Dream 3

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 RESPs are eligible for the Canada Education Savings Grant, equiva-
lent to 20% of the subscriber’s contributions up to certain lim-
its. And further grants are available to low-income families and
students from some provinces (more details in Chapter 2). The
savings grow tax-free within the account until such time as the
beneficiary is in university, college or trade school for example,
and the family starts making withdrawals to pay for it. You can
withdraw as much as you contributed (less fees) tax-free. Grants
and income over and above that amount are taxable in the hands of
the student — but in most cases they will pay little or no income
tax because of their modest income.

RESP TERMS TO KNOW

The person who opens an RESP and contributes to it is known as the
subscriber.

The child or children whose education the account is meant to fund

are called the beneficiary or beneficiaries.

The financial institution that holds and manages the account is known
as the promoter.

Contributions are monies paid into the plan by the subscriber(s).

Grants and/or Provincial Incentives represent contributions by the

federal and in some cases provincial governments.

Any money withdrawn from the plan over and above the subscrib-
er’s contributions (from investment gains and grants) are called
Educational Assistance Payments. These help students pay for
their post-secondary education after high school and are taxable in
the hands of the beneficiary.

Head here for a handy video about RESPs.

4 RESP For Dummies, CST Special Edition

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 Focusing on the Key Facts about RESPs
In addition to the grants and tax benefits outlined earlier, RESPs
have a number of other advantages:

»» There are almost no restrictions on how the RESP funds

can be spent. You can use them to pay for university,
­community college, CEGEPs in Quebec, apprenticeships,
religious schools and online or correspondence programs. This
includes programs outside of Canada and part-time studies.
You can also use them to fund associated costs such as travel,
room and board. You just need to provide proof of enrolment
into an eligible program.
»» Anyone can open an RESP for any child. It doesn’t have to
be your own child. Grandparents, for example, find it’s a way
to invest in their grandchildren’s future that they can add to
on birthdays and holidays. The child needs to be a Canadian
resident with a Social Insurance number.
»» You choose the amount to contribute. The lifetime
maximum is $50,000 per child. You can keep contributing
up to 31 years after you open the account.
»» A child can have more than one RESP. Grant eligibility and
the lifetime contribution limit are based on all contributions
to all accounts for the same beneficiary.
»» You have multiple options if your child decides not to
pursue post-secondary education. You can name another
beneficiary, transfer income into a registered retirement
savings plan (RRSP) or withdraw income as an accumulated
income payment (AIP; investment gains will be taxable).

Demystifying Fees
All RESP providers charge fees to pay for expenses such as admin-
istration, investment management, commissions, marketing,
operations and customer service. These fees are often charged to
your RESP account or the investments held within the account,
reducing your returns and the amount of money you can give your
child to go to school.

CHAPTER 1 Giving Your Child the Freedom to Dream 5

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 Fees can vary widely between companies and products. This
is why it’s important to compare plan providers before you
­commit to one.

Consider these fees and what they might cost you:

»» Set-up fees for opening an account (some providers

have none).
»» Annual administration fees (some providers may waive
these fees).
»» Various transaction and management fees for different
investments. For example, fees for buying or selling stocks,
exchange-traded-funds (ETFs), mutual funds or the
funds you hold.
»» Sales charges applied by some scholarship plan dealers.
»» Penalties and special service charges, for example to
withdraw money early, move it to another provider or
change the beneficiary.

Add up all the fees you’ll potentially be charged by different

promoters to get a realistic picture of comparative costs; note
that some promoters may offer a sales charge refund.

6 RESP For Dummies, CST Special Edition

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 IN THIS CHAPTER
»» Understanding the Canada Education
Savings Grant

»» Discovering three different types of RESP

»» Exploring self-directed versus

managed investing

Chapter 2
Organizing Your Child’s
Financial Future

R
ESPs can open up a world of opportunity for your child or
children. In this chapter we look at how you can take advan-
tage of government funding for your RESP, as well as the
different types of RESP.

Understanding Government Grants

and Eligibility
A huge part of RESPs’ appeal is the way they supplement your own
savings with government grants. It’s not just you who wants to
see your child succeed, remember. The government has an inter-
est in having the next generation of workers and taxpayers acquire
the skills to fill leading-edge jobs and carry the economy forward.

Types of grants available

Every child beneficiary of an RESP is entitled to the Canada Edu-
cation Savings Grant (CESG). This is free money, courtesy of the
federal government, that’s added to your account following every
contribution you make. It equates to 20% of your contributions to
a maximum of $500 per year and, cumulatively, $7,200 per child.

CHAPTER 2 Organizing Your Child’s Financial Future 7

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 If you don’t contribute the $2,500 necessary to attract the full
$500 grant in any one year, it’s possible to catch up in later years
and obtain more than $500 in a year based on unused contri-
bution room.

On top of the standard CESG, your family may be eligible for an

Additional CESG and other grants:

»» Additional CESG. Families with a lower annual net income

may be entitled to an additional 10% or 20% grant on the
first $500 contributed in any one year.
»» Canada Learning Bond (CLB). Lower-income families can
receive $500 in the first year and $100 for each additional
year they qualify to a maximum of $2,000.
»» Quebec Education Savings Incentive (QESI). The Quebec
government tops up residents’ contributions to the tune of
10% on the first $2,500 contributed in any one year to a
lifetime maximum of $3,600 per child.
»» Additional QESI. Lower-income Quebeckers are entitled to a
further 5% to 10% on the first $500 contributed every year.
»» British Columbia Training and Education Savings Grant.
The B.C. government offers $1,200 for each child in the
province born in 2006 or later, payable on their sixth
birthday and retroactively available up to age nine.

CASE STUDY: EMMA AND JACK

Ontario residents Emma and Jack are in their 30s and have a newborn
baby, Liam. Emma is a customer service agent and Jack a graphic
designer. Their household income is $120,000 per year.

They agree to put aside $100 a month in an RESP. If their income

and savings rate stay the same and they earn 5% return, the cou-
ple will amass more than $41,024 by the time Liam graduates high
school — $20,400 in contributions, $4,080 Canada Education
Savings Grant (CESG) and $16,544 in investment gains.

But their hope is that, as their household earnings increase and

their own university debts get paid off, they can boost their contri-
butions and the grants received. Liam can expect to attend a four-
year program close to home with most or all expenses taken care
of. (Illustration only, please see disclosure on p.12.)

8 RESP For Dummies, CST Special Edition

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 Understanding Different Types of RESP
Before you open an RESP, you need to figure out what format best
suits your situation. There are three types of plan to choose from,
and you can decide how you want to invest your savings: in a do-
it-yourself or managed portfolio.

Compared to other accounts, such as a Registered Retirement

Savings Plan (RRSP), an RESP has a short time horizon. The asset
mix ideally becomes more conservative as your child’s gradua-
tion date approaches. (Some financial advisors will reallocate your
savings in this way for you in a managed account.) That way, your
savings will be less vulnerable to a stock-market setback at the
wrong time.

Group, family and individual plans

Not all RESPs are the same. They come in three basic formats:

»» Group plan. Enrolment in a group plan is designed to save

for one child at a time; perfect for someone who’s looking for
a disciplined savings approach. These plans are provided by
Scholarship Plan dealers who usually invest the money in
low-risk investments. It pools the contributions and earnings
of all subscribers and adheres to a strict contribution
schedule. When the plan matures, children of the same age
cohort share in the investment gains.

If you prefer a more flexible contribution schedule or if your child

pursues a shorter study program or decides not to pursue post-
secondary education, you have the option of enrolling in or transfer-
ring to a Family or Individual Savings Plan.

»» Family plan. Those saving for multiple children may opt for
a family plan. The savings here may be used by any or all
named beneficiaries in any proportion so long as they’re
siblings and under age 21. The contribution and grant limits
are based on the number of children covered.
»» Individual plan. This type of plan can be used towards the
post-secondary education of any beneficiary, including self.
There are no age restrictions for naming a beneficiary.

CST offers all these RESP types.

CHAPTER 2 Organizing Your Child’s Financial Future 9

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 CASE STUDY: JULES
Jules is a 26-year-old single parent in Coquitlam, B.C. She works as a
receptionist and takes home $50,000 a year. She’s also attending col-
lege part-time, hoping to upgrade her skills. She wants her newborn
son to have opportunities that she didn’t, and wants to put away
whatever she can for his future.

She decides to open an individual plan with $100 monthly contribution.

As a result, she manages to get a good start on her son’s education
fund with $840 in the first year comprised of $500 Canada Learning
Bond (CLB), $240 of Canada Education Savings Grant (CESG) and $100
of Additional CESG (ACESG) excluding any investment gains.

If, beginning in year two, Jules continues contributing $100 a month,

her savings will grow to approximately $49,661 by her son’s 18th
birthday, made up of $20,400 in contributions, $5,780 in CESG, $2,000
from the CLB, $1,200 from the B.C. Training and Education Savings
Grant and $20,281 in investment earnings, assuming 5% annual rate of
return. This would nearly fully cover a four-year stay-at-home program.
(Illustration only, please see disclosure on p.12.)

Digging into DIY versus

managed investing
Another choice families setting up an RESP must make is how the
account will be managed. The most basic distinction is between a
do-it-yourself (DIY) versus a managed account:

»» DIY RESP. A do-it-yourself RESP is overseen by the sub-

scriber. They set up a brokerage or mutual fund account,
choose the investments to put in, and determine the
contribution schedule themselves. DIY RESPs are only
possible in individual/family plan types - not group RESPs.

• Pros: This is usually the lowest-fee way to invest with no

portfolio management fees. It also offers full customiza-
tion to the particular needs of the individual and the
maximum flexibility to change course if need be.

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 • Cons: A DIY account may face a higher risk of capital
losses, due to the lack of professional management. You
may not fully understand when and how to de-risk the
portfolio as your child’s graduation date approaches.
»» Managed investing. Choosing an investment professional
or team to manage the RESP saves the subscriber the time
and worry that come with managing their own investments.
Managed RESP accounts are customized to meet certain
risks, objectives and client’s needs and are possible for all
the three RESP types.

• Pros: Investment professionals strategically monitor and

make necessary adjustments to the account. You may be
asked for input, but you don’t have to do the work.

• Cons: Though fees will vary depending on the level of

service provided, managed investing often entails higher
expenses than the DIY route and the potential for lack of
customization.

(Please note that the above is an extremely simplified summary of

the topic, restricted to one pro and one con for each of the invest-
ing methods.)

The Canada Revenue Agency limits the types of investments that

can be held in an RESP. Some of the RESP-eligible investments
include equities (stocks), bonds, mutual funds and exchange-
traded funds (ETFs).

CASE STUDY: SARIKA AND AKHIL

Akhil, 32, is an IT consultant from Laval, Quebec, who immigrated
to Canada with his wife Sarika, 30, a marketing manager, and their
newborn daughter. With a household income of $180,000, as
Quebec residents they qualify for the Canada Education Savings
Grant (CESG) and they can take advantage of that province’s
Quebec Education Savings Incentive (QESI). They don’t qualify
for other grants aimed at lower-income families.

Optimistic about their daughter’s future in Canada, they aim to con-

tribute $200 per month to a family plan that can be used for their

(continued)

CHAPTER 2 Organizing Your Child’s Financial Future 11

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 (continued)

daughter’s education. At that rate of contributions, they’ll receive

$480 in CESG and $240 from their provincial government under QESI,
for a total book value at the end of year one of $3,120 excluding any
investment gains.

If they continue contributing $200 per month until their daughter

turns 18, they’ll capture $7,200 in CESG and $3,600 in QESI to which
they’re entitled. At a 5% annual rate of return they can expect to raise
just under $87,258 by the time their daughter starts university;
enough to put her through a four-year program, living at home.
(Illustration only, please see disclosure below.)

The examples in this book assume all scheduled contributions will be

made and are not intended to show actual future values. Investment
returns and the actual future value of an education savings plan cannot
be predicted or guaranteed. The illustrations assume an annual rate of
return rate of 5% and assume grants and incentives are collected at the
beginning of each year until maximum grant is collected for each
scenario. In addition, we compounded the savings and interest at the
beginning of each year.

The cost illustrations in the above case studies provided are for
educational purposes only pertaining to RESPs. Actual expenses may
vary significantly based on factors such as university choice, program
of study, location, housing arrangements, and personal lifestyle. We
recommend consulting specific universities and conducting thorough
research to obtain accurate and up-to-date financial information
tailored to individual circumstances.

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 IN THIS CHAPTER
»» Considering key factors in your choice
of provider

»» Ensuring you’re in safe hands

Chapter 3
(More than) Ten Key
Questions to Ask
Before Choosing
an RESP Provider

T
he previous chapters explain what an RESP is and what kind
of plan might be right for you. All that remains is the choice
of promoter to handle your funds. Shop around. Since you’ll
likely work with them for 15 years or more, and the plan can stay
open for up to 36 years, it’s worth putting the effort in now to find
a good fit.

Here are the key questions to ask about every prospective

RESP provider:

» Are they experts in investing specifically for education

savings plans? Investing for education involves understand-
ing the specific time frame and the financial constraints
growing families face. Make sure your provider is on
your side.

CHAPTER 3 (More than) Ten Key Questions to Ask Before Choosing an RESP Provider 13

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 »» Are they education savings specialists? Banks, credit
unions, digital brokerages and mutual fund companies all
offer RESPs. However, a dedicated RESP provider will have
the specific expertise you’re looking for and have a long
history in the RESP industry.
»» Will I have a dedicated sales representative? A mobile-
friendly interface is convenient, but you also want someone
to connect with you when you have a question.
»» Do they have experience and a credible history? Find out
how long the promoter has worked in the area. Examine
their track record, including past returns for participat-
ing families.
»» Is the process simple and easy? Young parents are often
new to investing. It’s important to have a provider who can
walk you through the steps and spell out the options.
»» Are the fees competitive? Compare any annual manage-
ment and transaction fees with those of other companies
offering a similar level of service.
»» Do they provide any boosts to your savings? Some
dedicated education savings specialists offer incentives such
as a fee refund at completion.
»» Will they help you get the most from government
grants? An education savings specialist will identify and help
you apply for every additional funding source you may be
eligible for.
»» Do they provide scholarships and extra funding? An
education-first provider may have its own scholarship
programs for exceptional students and families in need.
»» Do they have exclusive rewards and offers? Certain
providers reward customers with deals and exclusive offers
throughout their savings journey.
»» How easy is it to access information or make changes to
account once your plan is set up? Verify if your promoter
provides a self-serve website or a toll-free number, and note
that some representatives may service their subscribers for
the lifetime of the plan.

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