September is back-to-school month, and if you’ve got kids and there’s any remote chance they will pursue

post-secondary education

, contributing to a r

egistered education savings plan

(RESP) is the best school supply you can purchase this fall.

While RESPs have been around for decades, they really took off back in 1998 with the introduction of the matching 20 per cent Canada Education Savings Grants (CESGs). Yet, here we are, nearly 30 years later, and in my experience not all parents (or, in some cases, grandparents) are fully taking advantage of these plans. To this end, here’s a quick refresher of RESP basics, followed by some contribution strategies worth considering this fall.

The RESP is a tax-deferred savings plan that helps an individual, typically a parent, save for a child’s post-secondary education. Up to $50,000 of contributions can be made per child, although only the first $36,000 will attract CESGs since they are limited to $7,200 per child. The basic CESG is equal to 20 per cent of the first $2,500 of contributions made into an RESP for each year, or up to the first $5,000 in contributions if sufficient CESG carry forward room exists from prior years.

Similar to other registered plans, the RESP is essentially a wrapper in which you can hold various eligible investment products such as

guaranteed investment certificates

(GICs),

mutual funds

and individual

stocks

and

bonds

, depending on the type of RESP you open. Unlike registered retirement savings plans, contributions to an RESP are not tax-deductible nor are they taxable when withdrawn.

The main benefit of the RESP is the ability to have all earnings (

capital gains

,

dividends

and interest) on the investments inside the RESP accumulate tax-free until withdrawn. When the funds are paid out, they are included in the student’s income but presumably the child will be in a low- or zero-tax bracket, on account of the various tax credits available to them. These include, most commonly, the basic personal amount ($16,129 for 2025) and the federal tuition amount (average Canadian undergrad tuition in 2025 is $7,360), meaning the first $23,500 of earnings come out tax-free.

When funding an RESP, the first missed opportunity is that some parents only start thinking about contributing to their kids’ RESPs well after their children are born. But contributing to an RESP as soon as possible can be much more beneficial due to the benefits of compound investing.

Let’s take a look at three funding strategies. In each case, we’ll model how much money you can accumulate in an RESP over 18 years, when most kids will begin a post-secondary education and will need to begin drawing funds from their RESP. In the examples below, I’m going to assume that RESP subscribers will initially invest all their RESP contributions and the CESGs in a pure equity portfolio, which will generate a six per cent rate of return annually. When the prospective student turns 16, however, with only two years or so left until funds are needed for post-secondary education, the portfolio will be switched into less volatile fixed income investments, such GICs. In this case, I prefer a laddered approach where GICs of two-, three-, four- and five-year durations are purchased, such that funds become available each year of a four-year program. We’ll assume an average three per cent rate of return for those final two years of accumulation.

Example 1:

Michael starts saving for his son Robbie’s education the year he is born. If he contributes the $2,500 maximum amount needed each year to maximize the CESGs until he hits $36,000 of contributions in the year Robbie turns 14, he will have accumulated nearly $81,091 in Robbie’s RESP by the time he turns 18, using the rates of return above.

Example 2:

Contrast this with Jay, who only starts saving for his son Zev’s education when he turns 10 by contributing $1,000 in that year and then $5,000 each year from age 11 to 17 to catch up on all prior years’ CESGs. By the time Zev is 18, assuming the same rates of return, Zev’s RESP would only be worth $52,387, despite Jay having contributed the same $36,000 that Michael contributed, and having received the full $7,200 in CESGs.

Finally, for those parents who can afford to do so, consider maximizing the tax-deferred (or, most probably, tax-free) compounding by contributing beyond the annual amounts needed to maximize the CESGs. This can be done by making an additional lump sum contribution of $14,000 as early as possible, bringing the total amount contributed up to the lifetime maximum of $50,000 per child.

Example 3:

Following this advice, Gila decides to contribute to Harry’s RESP using the maximum funding strategy by contributing $16,500 in the year Harry is born, consisting of the $2,500 needed to get the first year’s 20 per cent matching CESG, and the extra $14,000 permitted to maximize the lifetime $50,000 contribution without passing up on future years’ CESGs. In this case, using the rates of return above, Gila will be able to accumulate $118,822 in Harry’s RESP by the time he turns 18.

But, would it ever make sense to forego the annual CESGs (beyond the first year’s $500) by contributing $50,000 in Year 1? Over the years, I’ve had several advisers suggest this to me, arguing that the value of the tax-free accumulation of a larger upfront lump sum RESP contribution can outweigh foregoing most of the CESGs.

To model this, I compared a lump-sum $50,000 investment in Year 1, which attracted the first year’s CESG of $500, using the same rates of return as above. At the end of 18 years, the value of the RESP was $136,100. But while this may initially appear to be a better result than Gila’s CESG-maximizing strategy, we need to take into consideration that Gila had the use of the funds she didn’t contribute to the RESP during those 18 years (until they are actually contributed).

  • CRA denied taxpayer benefits because of his Airbnb classification
  • CRA penalizes taxpayer for failure to report the sale of residential real estate

For example, in Year 1, Gila contributes $16,500 to Harry’s RESP, but she has the $33,500 to invest personally outside the RESP. Once we take this into account, it’s clear that Gila’s strategy beats a lump-sum RESP contribution using the rates of return assumptions above.

But is this always true? Not necessarily. We calculate that if Gila were able to achieve a 6.6 per cent or higher annual rate of return for the first 16 years, her RESP would indeed be worth more with an initial $50,000 contribution, foregoing future years’ CESGs.

Jamie Golombek,
FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.
Jamie.Golombek@cibc.com

.

If you liked this story,
sign up for more
in the FP Investor newsletter.