A family Registered Education Savings Plan (RESP) is a tax-advantaged savings account with multiple beneficiaries. It’s opened by a blood or adoptive relative, such as a parent or grandparent. An individual RESP only has one beneficiary and can be opened by anyone, regardless of relationship.
Canadian families can use RESPs as a way to save for their childrens’ post-secondary education. These accounts offer tax-sheltered growth, meaning your investments can grow over time without being taxed as long as they remain within the RESP. Plus, the Canadian government provides generous incentives in the form of grants like the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB), which can significantly boost your savings.
Let’s take a look at 2 types of RESPs – individual and family – to help you determine the best option for your family.
Key Takeaways
- A family RESP is a type of registered education savings plan where family members can save for multiple childrens’ education.
- There is only one beneficiary in an individual RESP and anyone can open an account.
- Income made by the RESP is tax-free for as long as the funds stay within the plan.
- Family RESPs offer some flexibility but are limited to blood or adopted family members.
- The lifetime contribution limit for a family RESP is $50,000 per beneficiary.
Individual vs. family RESP
While both individual and family RESPs contribute to the financial planning for a child’s future post-secondary education, there are key differences.
Here’s a handy chart that compares the 2 types:
| Individual RESP | Family RESP |
|---|---|
| * An individual RESP can be opened by anyone, for anyone * There can only be one active beneficiary * The beneficiary doesn’t need to be related to the subscriber * Beneficiaries can be named to an individual RESP at any age | * A family RESP can be opened by the parent, grandparent, or sibling of a beneficiary * There can be multiple active beneficiaries under the plan * Funds need to be contributed to the family RESP in the name of the beneficiary * Beneficiaries can be named to a family RESP up until age 21 |
Family RESP rules
Relatives can contribute to a family RESP as long as the beneficiary is their child, grandchild, or sibling under the age of 31 and the beneficiary has not exceeded their $50,000 lifetime contribution limit.
While more than one beneficiary can be included in a family RESP, all contributions made to that RESP must be made in respect of a specific beneficiary.
Relatives must stop making contributions for a beneficiary at the earliest of these 3 dates:
- the beneficiary’s 31st birthday,
- 31 years after the end of the year that the RESP was opened, or
- in situations where an RESP transfer has taken place, 31 years after the year of the "earliest effective data that applies."
Contributions can be withdrawn at any point from the RESP if it meets the terms of the plan. The income earned in the RESP is usually paid by the bank or financial institution to the plan holder at the end of the contract, in the form of educational assistance payments.
For a payment to qualify as an educational assistance payment, the beneficiary has to be enrolled in a qualifying program at a post-secondary educational institution, on either a full or part-time basis.
Pros and cons of a family RESP
When it comes to choosing between a family and individual RESP, the decision usually boils down to the relationship you, as the subscriber, have with the child, or beneficiary.
If you want to contribute to the educational savings for a beneficiary who is not immediately related to you by blood or adoption, a family RESP is simply not an option, so you’ll have to set up your own savings program or use an individual RESP.
However, for those who qualify, here are some of the positives and negatives to help you determine if a family RESP is right for you.
| Pros | Cons |
|---|---|
| * The income earned on these investments is tax-deferred. * The government matches part of your contributions and makes additional contributions for beneficiaries who come from low-income families. * The ability to add multiple beneficiaries to one plan means only one set of management fees, less information to digest, and fewer investments to manage. * Family RESPs with multiple beneficiaries offer flexibility in the event where one beneficiary chooses not to go to school, or the education of one beneficiary costs significantly more than the other. |
* A family RESP is limited to direct family members only. * Beneficiaries must be added to RESP before they turn 21 (there’s no age limit on individual RESPs). * It’s not ideal for those who prefer to keep savings in separate accounts. |
Are you considering a family RESP?
Are you weighing your options when it comes to saving for the post-secondary education of a young person in your life?
Are you considering setting up a family RESP?
If not, what are your alternative plans for saving? Why did you choose that path?
We’d like to hear from all Canadians about their educational savings strategies – please share in the comments below.
FAQ
What is a family RESP?
A family RESP allows family members to contribute up to $50,000 on behalf of a child who is under 31 years old to help save for their post-secondary education. Multiple beneficiaries can be included in a family RESP.
Can you transfer an individual RESP to a family plan?
Yes, you can transfer an individual RESP to a family plan, provided that the beneficiary is a child, grandchild, brother, or sister through either blood or adoption.
What is the family RESP contribution limit?
The contribution limit for family RESPs is $50,000 per beneficiary over a lifetime. Contributions can only be made on behalf of a beneficiary who is under 31 years of age and has not yet hit their maximum lifetime limit.
Can grandparents open a family RESP?
Yes. Family RESPs can only be set up by a beneficiary’s family members, and to be considered family a subscriber must be a parent, grandparent, or sibling of the beneficiary. That relationship could be based on blood or adoption.
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