RESPs, How do they work?


If your goal is to save to help a child get an advanced education, there is no better method than the RESP.


The RESP, or Registered Education Savings Plan, is a tax-deferred investment account that the government will deposit grants into based on your contributions and income.



That sounds great, but it may not make sense to everyone, so I’ll explain it a bit better.

Tax-deferred simply means that the growth within the account is not subject to being taxed each year, which allows it to grow more over time. Eventually when the student decides to withdraw to pay for



Now as far as grants go, this is where the RESP really shines. For every $1 you put into the account, up to a maximum of $2500 per year, the government will contribute 20%. Meaning you can max out the grant by depositing $2500 and the government will contribute $500… for free. Yes, the beneficiary of the RESP will have to pay tax on that when they withdraw it, but it is a really good deal.


If your income happens to be low, the government will match 40% on the first $500 contributed each year. They will also deposit $500 the year you open it and $100 for every year your income still qualifies.


To make it even better, the government of BC will deposit $1200 to any child’s RESP as long as they are a resident of B.C and between the ages of 6 and 9 years old.



Remember, the RESP is just a type of account, not an actual investment. It means that you can own a variety of different types of investments inside the RESP. You could deposit $2,500 to the RESP, receiving $500 in grant and then invest that $3,000 into a GIC, Mutual Fund, ETF, Stock, Bond or various other investments.


Finally, if you miss maximizing your contributions in any year, the government will allow you to catch up 1 year at a time. Meaning you could actually contribute $5,000 in a year and get the maximum grant twice, so long as you had a previous year you didn’t contribute.