The Upside: RESPs made simple: Saving smarter for your child's future - August 13, 2026

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<b>Subtitles are AI Generated</b>

 

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Hello everyone, and welcome to The Upside.

 

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I'm Kyle Cheropita. There are many accounts available for tax-efficient

 

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financial planning, and we've covered most of them on The Up Side before.

 

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Today, we're going deeper into the Registered Education Savings Plan,

 

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or RESP. It's summertime, and families will soon be withdrawing money

 

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for the upcoming school year, so today we'll cover how RESPs work overall,

 

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and then go deeper into how RESP withdrawals work, an area where families

 

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have many questions and some misconceptions.

 

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First up, we'll answer why it's beneficial to save for post-secondary education

 

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in the first place. And here to take us through all of this and more is

 

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Michelle Munro, Director of Tax and Retirement Research, who is a great friend

 

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of the show. Welcome, Michelle.

 

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Great to be here. Thanks for having me, Kyle.

 

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Hey, thanks for joining me yet again in our studio for an upside today.

 

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So to start off, I wanted to ask you, what is your main goal for today's

 

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conversation?

 

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Well, we're going to talk about registered education savings plans, RESPs.

 

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And I wanted to do a quick recap of why they're

 

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important, how we could use them.

 

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And really, today, I want to focus on withdrawal strategies.

 

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How do we start to use them in a tax-efficient way for

 

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our families as we're saving for post-secondary costs?

 

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Right, so we'll cover the accumulation phase, then the decumulation withdrawal

 

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phase, hopefully in a tax-efficient way.

 

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In a tax-efficient way.

 

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But let's start by zooming out a little bit and talking about family financial

 

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planning. Now, it's daunting for people, but it's very practical, it is very

 

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necessary. What can you tell us about that? It is.

 

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It is. It's a big time in people's lives.

 

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They're starting a new family, building their careers,

 

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possibly buying a home, getting settled, and

 

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thinking years, almost two decades in

 

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advance, thinking about post-secondary costs.

 

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It can be overwhelming, oh, put that off, put that off.

 

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But for our audience who are tuning in today, thinking about those

 

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costs... And planning for them sooner rather

 

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than later, and also prevention's worth a pound of cure.

 

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There you go. And why would you say that education planning is

 

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kind of the most important piece that fits into that?

 

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Yeah, well education, it's becoming more common that people

 

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go on to post-secondary.

 

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Those costs of those post- secondary programmes are increasing.

 

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The third piece is that those programmes are also getting longer in

 

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second programmes, meaning the costs are just growing and growing.

 

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And again, the earlier we can think about it,

 

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the earlier can plan for it and invest for it, the better prepared

 

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we'll be.

 

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There we go. And I know you have a few habits that you wanted to instil into

 

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our audience today. What can you tell us about financial planning habits?

 

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Yeah, the first habit is just starting early.

 

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Invest often. The second one is, well, thinking about, well, especially

 

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for this age group, there are some competing financial priorities,

 

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thinking about your debt as well and managing that.

 

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And the third piece, especially important when we're talking about RESPs,

 

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is you don't want to, you want to take advantage of free money.

 

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You don't wanna forget about that.

 

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And with RESPs there's a grant.

 

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So what do you mean by free money? What is that?

 

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Okay, so when subscriber opens up their RESP,

 

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there we make a contribution, the government will give you a grant.

 

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It's called a Canada Education Savings Grant, CESG.

 

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There's a dollar limit, $500 per year, 20%

 

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of the contribution. So if someone makes a $2,500 contribution,

 

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then the grant would be $500.

 

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Okay, so a lot of free money that families should not leave on the table.

 

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You don't want to miss out on that, yeah. Well next up, let's talk a bit more

 

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about the basics, about understanding how RESPs work.

 

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So what can you tell us about just the basics?

 

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So typically it's a parent, it could be a grandparent, but they're the

 

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subscriber. They would open the account, make that contribution.

 

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There's no deduction for that contribution, but could

 

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get a grant, we talked about that, up to $500, 20% of the

 

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contribution.

 

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Now the earnings and the growth inside that RESP,

 

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their tax deferred until there's

 

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a Well, it's an account, but we can invest in mutual

 

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funds, exchange-traded funds, stocks and bonds.

 

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It don't think of it as just a savings account.

 

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It's an investment account.

 

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And then all those earnings are tax-deferred until it's withdrawn,

 

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when typically the child goes to post-secondary education.

 

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Okay. And then you mentioned what the accounts can invest into, but what are

 

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the different components of an RESP?

 

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So we have the original contribution.

 

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Yes. Then we have to grant money.

 

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And then there's also those earnings and the growth.

 

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And the compounding is a very important part of it.

 

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That's the growth, so that's why I really want to stress

 

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the importance of starting early.

 

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Because you also want to take advantage of the grants as well as that

 

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compounding growth.

 

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Exactly. And we actually we have a graphic that we'll throw up just to drive

 

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this point home. And this is comparing starting at age zero for a

 

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child versus age seven.

 

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And so what we did is we started, what happens if somebody starts at age 0,

 

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contributes $2,500, and we want to take advantage

 

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of getting that grant money right off the bat, and comparing that with

 

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somebody who starts at when the child's age 7,

 

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double that, $5,000, we can do

 

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a catch-up on the grant money as well.

 

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But what we can find here is that the person who started earlier...

 

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Has more money than the person who started later.

 

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And I wanted to share this so our audience would see the importance of

 

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starting early.

 

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That's right. So you can start anytime, but there are clear benefits to

 

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starting early.

 

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Yes, exactly.

 

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That's right. So in our graphic that we just showed, we use the example of

 

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$2,500 being the starting point, but do parents necessarily need to have $2500

 

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to start?

 

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Absolutely. So you think you could set it up that you're

 

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making monthly contributions.

 

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So $2,500 divided by 12, a little over $200 each

 

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month. If that's not achievable, well then

 

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whatever's achievable for you at that time,

 

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the importance, really what I want to stress is the importance of starting

 

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early with whatever's manageable at that.

 

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Whatever you can. Yeah. Because you mentioned it in your first answer there.

 

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There are a lot of conflicting priorities with mortgage, and just ongoing

 

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bills, groceries.

 

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Mm-hmm. Yes, they are.

 

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Now, I wanted to ask you next, so as a father myself, I'm of one with the

 

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second one on the way. Congratulations.

 

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Thank you very much. Do you need to have a second account or separate accounts

 

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for each child?

 

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So what you're alluding to is, well, do you have to have an individual account

 

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for each child? Yes. You could set it up that way.

 

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The typical way you would set it up is a family account.

 

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So you're still making the same, you have two children, I know one's on the

 

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way, but you set it as a family account.

 

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You're still make the contributions based on each child.

 

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So instead of one $500 grant per year you pay at two,

 

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so a thousand dollars per year.

 

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That's good. That's free money you, Mitch.

 

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Don't leave it on the table. Right. Don't leave it on the table.

 

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Right, the reason I'm suggesting that you would send it up as a family account

 

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is thinking ahead to well, when the children would

 

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attend post-secondary education and it's time to start withdrawing.

 

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Right. So let's say one child doesn't go to post-Secondary education

 

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or maybe gets scholarships and doesn't need the money in the account.

 

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Or maybe the second child chooses a really expensive programme.

 

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Going to be, I don't know, and maybe it's going to be a long PhDs

 

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and things like that. It needs more of that.

 

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It gives you as the subscriber the flexibility to

 

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say, maybe allocate more to that second child that needs it more as

 

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opposed to the sort of 50-50 for each children.

 

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So it just gives you that extra flexibility.

 

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And especially in these early days.

 

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Yeah, you don't know what's going to happen in 15 years.

 

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OK, so flexibility is the key.

 

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Now, I wanted to ask you as well, we mentioned off the top there's several

 

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accounts out there to be tax efficient with your investing and saving.

 

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RESP versus TFSA, are there comparable?

 

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Is it a comparable account, would you say, or?

 

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I think they're adjacent accounts.

 

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So the RESP is very targeted for post-secondary

 

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education, typically for a child, possibly a grandchild.

 

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A TFSA, tax-free savings account, well,

 

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those are targeted for saving in a tax-efficient way,

 

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investing in a tax-sufficient way.

 

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You have to be over 18 to open up that TFSA.

 

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You don't get a tax deduction for your TFSA contributions,

 

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but they're so much more flexible. You could use that withdrawal to help

 

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fund a child's post-secondary education.

 

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You could it for something else.

 

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So that's what I'm saying, it's adjacent.

 

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Yeah, they're complimentary.

 

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That's right.

 

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That's right. And we've talked about TFSAs before.

 

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There's a slew of information on failure.ca, so viewers can go check that out

 

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if they wish. Now let's talk about the withdrawals as well.

 

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So let's paint a scenario where we say a family and the child, they did

 

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everything right, they saved, they got in early, compounded.

 

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It's time to withdraw. A student is starting in post-secondary in the fall.

 

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What's next? What do they do?

 

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First of all, we want to, congratulations.

 

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They got there. They did. Yeah. They got it there.

 

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Then we're going to take a deep breath. So how are we going to pay for that

 

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all? So in our account, well, we've got that.

 

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We talked about this. We have the original contributions.

 

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We have to grant money. We have growth money.

 

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So now is going to come time to make a withdrawal.

 

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So contact your financial institution.

 

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Typically, they'll need some confirmation that the child's been enrolled in a

 

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post-secondary education. It's called confirmation of enrollment The

 

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child has to download it from their file from their post-Secondary

 

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Education programme Submit that depend depending on how

 

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long the programme is First term there's certain limits of how

 

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much can be withdrawn from each account.

 

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Okay, so the first Bucket is the return of

 

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the original capital That is not tax, because

 

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if you didn't get a tax deduction on the way in, the withdrawal of the original

 

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capital is tax-free.

 

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Very nice. And that usually goes back to the subscriber, the

 

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parent. Then the other buckets that are in there are the

 

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grant money and the earnings and the growth.

 

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That gets withdrawn as called a post-secondary education

 

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amount. Okay.

 

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I have all these acronyms. It is taxable to the

 

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student. So we've had all this tax deferral of

 

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earnings and growth and the grant money.

 

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Now it's being taxed and here's the advantage.

 

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Typically the student doesn't have very much or

 

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very little other income.

 

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Also the student is typically going to get tuition credits reducing

 

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their taxable income.

 

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So, we've have all this Deferred Earnings.

 

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When it is withdrawn as taxable, but taxed at a much lower

 

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tax rate than it would have been at the parent's rate, the

 

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subscriber's rate.

 

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Very smartly designed programme.

 

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It is. You know, you look at this and the government does want

 

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to support parents, grandparents, guardians,

 

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what have you, the list goes on, but they want to support the cost

 

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of post-secondary education.

 

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Very nice. Now I understand there are two types of withdrawals.

 

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Can you get into those?

 

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So there's the, I have to look at my notes here.

 

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Of course.

 

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Okay, so there was that return of capital, the technical term

 

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is a post-secondary education withdrawal, and

 

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that's the tax-free component.

 

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Typically it goes to the subscriber, the parent.

 

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Then there's the EAP, which is the Education Assistance Payment,

 

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EAP. That is the growth, the

 

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earnings, and the grant money, and that's taxable to the student.

 

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Okay, so those were the two buckets. Those are the two back previously.

 

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Okay. I understand

 

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Oh, okay. Okay.

 

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Okay. And then, so why is- I know we-

 

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I know, we have so many acronyms and we throw these things around.

 

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And then why is that distinction between the two types of withdrawal so

 

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important?

 

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Well you want to thinking about okay well first of all

 

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okay typically post-secondary programmes they could last anywhere

 

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from two years, four years, two, three years, or longer.

 

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So you want to be thinking okay well what is my entire balance that I have?

 

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What are the two buckets here.

 

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You want to sort of smooth it a little bit.

 

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But also be thinking about, okay, well, this bucket of the employee assistance

 

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payment is going to be taxable to the student, the

 

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child.

 

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Well, what if, certainly in the earlier years, they don't have any

 

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work terms or have very little earnings and co-op, I'm thinking

 

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about well, what about in the later years, co-ops programmes are

 

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more common, earnings tend to go up.

 

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So it's thinking about the balance of, well, how much is going to be taxable

 

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in the students' hands?

 

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So you want to be strategizing a little bit.

 

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And there's a lot of moving parts here.

 

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But strategizing is that income inclusion from

 

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that EAP withdrawal is taxed in the student's hand,

 

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but getting it at that low tax rate.

 

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Okay, since it's a little complicated, I'm sure everyone today appreciates you

 

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talking them through it. Yeah, I wanted to get a bit deeper into the withdrawal

 

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strategies. Do you have any more general tips for the withdrawal strategy for

 

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families?

 

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So thinking about, okay, well, how long is it going to last?

 

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Maybe you're, and certainly my kids are going, my

 

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experience is they start one programme, it's three

 

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years. Oh, tendered every four years.

 

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Oh, we're gonna do a second programme.

 

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So there's a lot of moving pieces so you don't really know.

 

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So you just have to do the best you can with the information that

 

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you have. And sometimes kids often take a gap year

 

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as well.

 

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So they might be starting a little bit later.

 

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So thinking about these types of things, scholarships,

 

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longer programmes, shorter programmes, there's a lot of moving parts.

 

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So you wanna be thinking about that as well

 

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Okay. Now I wanted to get into some of the common withdrawal, you know,

 

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mistakes or misconceptions. What's the biggest common misconception that you

 

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see out there?

 

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Well, I think the misconception is that, well, I can only take out enough to

 

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cover the tuition. And that's not true.

 

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We can take out the enough to covered tuition, boarding,

 

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lodging, transportation, books, et cetera.

 

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It's quite generous. It is very generous, yes.

 

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And typically financial institutions, they're not asking for receipts.

 

15:36.802 --> 15:40.873

Right. And I guess another misconception would be that it only works or is

 

15:40.873 --> 15:43.108

applied for a university, but that's not the case.

 

15:43.108 --> 15:48.080

I've tried to be very careful in our post-secondaries,

 

15:48.080 --> 15:52.918

which more than university, colleges, trade schools,

 

15:52.918 --> 15:56.422

check out, you'd be amazed, check out CRE's website.

 

15:56.422 --> 15:58.757

The list goes on and on.

 

15:58.757 --> 16:01.727

Are there any other common mistakes that you see families making that they

 

16:01.727 --> 16:04.196

should be prepared for?

 

16:04.196 --> 16:08.167

Hmm. I think that sometimes people think about, okay, well, what if

 

16:08.167 --> 16:11.870

my kid doesn't go off to post-secondary education?

 

16:11.870 --> 16:16.008

They actually don't have to collapse the account for 36

 

16:16.008 --> 16:19.845

years, 36 years after it was open.

 

16:19.845 --> 16:23.949

So I know that people think, okay, somebody's done their

 

16:23.949 --> 16:27.186

high school, their kid's finished their high-school, they're off, and well,

 

16:27.186 --> 16:30.923

they're gonna take that gap year. That gap year turns into two or three years,

 

16:30.923 --> 16:33.726

and they're thinking, oh no, what do I do?

 

16:33.726 --> 16:37.062

And that's part of the advantage of having that family plan that we talked

 

16:37.062 --> 16:41.000

about. Well, if you got a second kid, well then that kid could

 

16:41.000 --> 16:45.371

use that. But also we do have a much longer timeframe, 36

 

16:45.371 --> 16:48.707

years for our kids to figure it all out.

 

16:48.707 --> 16:53.112

Okay, so Michelle, you've established that the RESPs are quite flexible.

 

16:53.112 --> 16:54.847

Question for you though, what happens if the student graduates and there's

 

16:54.847 --> 16:55.948

money left over?

 

16:55.948 --> 16:58.951

So what could happen is that we'll after

 

16:58.951 --> 17:03.522

the 36 years, or sooner if you choose, you could collapse

 

17:03.522 --> 17:07.693

the RESP. Okay, so that means, okay, well,

 

17:07.693 --> 17:12.031

the subscriber, typically the parent, can get their original contributions back

 

17:12.031 --> 17:15.968

tax-free. Oh. Okay, that's a

 

17:15.968 --> 17:20.039

pretty good outcome. The grant money has to be returned back

 

17:20.039 --> 17:24.109

to the government. So now we're still left with a little bit of

 

17:24.109 --> 17:26.879

that earnings and growth and what have you.

 

17:26.879 --> 17:32.084

When that gets withdrawn, it's taxable to the subscriber.

 

17:32.084 --> 17:35.521

So typically the parent is in a higher tax bracket.

 

17:35.521 --> 17:38.323

Plus there's a 20% penalty, Kyle.

 

17:38.323 --> 17:42.294

So then, oh geez, you don't want that.

 

17:42.294 --> 17:46.799

But there is an option, you could roll it into an registered retirement

 

17:46.799 --> 17:50.002

savings plan, it's an RSP.

 

17:50.002 --> 17:54.573

Or in. Our DSP, Registered Disability Savings Plan,

 

17:54.573 --> 17:57.509

if the child qualifies for that RDSP.

 

17:57.509 --> 18:01.480

So there are some more tax-efficient options.

 

18:01.480 --> 18:04.583

But the money's not gone either.

 

18:04.583 --> 18:08.887

Well, the grant money has to go back to the government, but that sort of seems

 

18:08.887 --> 18:10.155

equitable, I think.

 

18:10.155 --> 18:14.426

I think so. So Michelle, as we near the end of our conversation here today,

 

18:14.426 --> 18:17.496

I just wanted to ask you, what is one takeaway you wanted to leave the audience

 

18:17.496 --> 18:18.030

with today?

 

18:18.030 --> 18:22.167

One takeaway? If you can pick this one, I'll give you two.

 

18:22.167 --> 18:25.170

I'm going to take as many as I need.

 

18:25.170 --> 18:29.408

The start early, even a small amount, makes a difference.

 

18:29.408 --> 18:34.813

Number two, you want to take advantage of those government grants.

 

18:34.813 --> 18:39.351

Once your child's ready for post-secondary education,

 

18:39.351 --> 18:43.555

start strategizing, thinking about, well, how are those withdrawals going to

 

18:43.555 --> 18:47.526

work? And think about, well, our ESPs are a flexible

 

18:47.526 --> 18:51.797

way to save and invest, plan for a child's

 

18:51.797 --> 18:55.868

post-secondary education costs, and the plan is more

 

18:55.868 --> 19:00.105

than just savings. It's also the withdrawing in a tax-efficient

 

19:00.105 --> 19:00.439

way.

 

19:00.439 --> 19:02.608

Of course. Well, Michelle, thank you so much.

 

19:02.608 --> 19:05.310

I think our audience is more knowledgeable having tuned into you today.

 

19:05.310 --> 19:05.344

Thank you.

 

19:05.344 --> 19:07.412

And I hope they're proceeding with more confidence.

 

19:07.412 --> 19:09.081

I hope so, too. Thank you so much.

 

19:09.114 --> 19:10.149

Pleasure to be here.

 

19:10.149 --> 19:13.252

And to all of you, thank you for joining the show today.

 

19:13.252 --> 19:17.322

For more insights on education costs and planning, visit fidelity.ca and read

 

19:17.322 --> 19:21.026

our article, How Does the Average Canadian Pay for University?

 

19:21.026 --> 19:25.164

Well, on fidelity.CA, you can sign up for the upside newsletter or the next

 

19:25.164 --> 19:29.201

webcast. The Upside starts as a streamed webcast on Zoom and

 

19:29.201 --> 19:32.070

are now being offered at two airing times during the day.

 

19:32.070 --> 19:36.475

So to not miss a first viewing of a new show, head to fidelity.ca slash

 

19:36.475 --> 19:39.511

The Up Side. So thank you, Michelle, and thank you everyone.

 

19:39.511 --> 19:41.747

And I hope you'll join us again on The Up side.

 

19:41.747 --> 19:42.748

I'm Kyle Cheropita.

 

19:58.864 --> 20:00.265

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We'll see you next time.