Navigating Your Tax-Free Savings Account

Registered Education Savings Plan ("RESP")

An RESP allows you to make contributions to a tax-deferred savings plan, much like an RRSP, for education saving for your children. The difference is the government provides grants to the extent you make contributions, which is basically free money! The grant is based on your contribution and family income. A higher grant is available for families with lower income. All your contributions and the government grants grow tax-free until the day your child needs the funds for education. When your child uses the funds, your child pays tax (not you) on the income earned and grant income that is withdrawn. The original capital contributed comes out tax-free. The benefit of taxing the income and grants in the child's hands is they probably won't have any tax to pay on this, the assumption being they shouldn't have a lot of income being a student, plus they'll have tuition tax credits available.