What is a RESP?

A Registered Education Savings Plan or RESP is a government-sponsored plan that allows parents to contribute each year in an account that appreciates tax free for up to 21 years. Contributions are not tax deductible, but investment income is not subject to income tax.

When the child starts post-secondary education, the RESP provides income to pay for tuition and related expenses. This is taxable at the rate applicable to the child’s income, not the contributor. Alternatively, if the child does not pursue a post-secondary education, accumulated earnings can be transferred to the contributor’s RRSP. Of course this is assuming there is sufficient contribution room available.