Introduction
The cost of post-secondary education is rising rapidly in Canada. People are looking for ways to be financially prepared for the education expenses of their children. The education expenses include the cost of tuition fees. The average tuition fee for an undergraduate program for Canadian students for the academic year 2023-2024 is around $7,076. The data is based on the statistics presented by Statistics Canada. The tuition fee for a professional program like dentistry, law, medicine, etc., is even higher. However, the tuition fee is just one part of the total education expenses.
One of the most expensive parts of the education expenses is the living expenses. The living expenses can be high for students who are moving from their homes to pursue their education. A report on the living expenses of the students for the academic year 2024 has been published by Universities Canada. The living expenses for the students who are moving from their homes can range from $10,000 to $15,000 annually. The rising education expenses are one of the reasons for people to save for the education expenses of their children with the help of an RESP.
One of the most popular education savings plans in Canada is the RESP. In fact, the Canadian government states that over 3 million kids in Canada are enjoying the benefits of the RESP accounts, with billions of dollars being set aside as grants by the government to fund the accounts of Canadian families.
The question of what the RESP can be used for still remains on the lips of Canadian families, given the fact that the RESP program is still one of the most popular programs to save for the child’s education. This means that the Canadian families are still wondering whether the RESP can be used to pay the rent of the child while still in school.
In order to gain a better insight into how the RESP can be utilized for a child’s education in Canada, as well as the rules that the CRA adheres to, the following information is useful.
What Is A Registered Education Savings Plan
A Registered Education Savings Plan is a savings account that is registered with the government of Canada. The purpose of this savings account is to assist Canadian citizens in saving for their children’s education. The difference between a Registered Education Savings Plan savings account and any other savings account is that it offers tax benefits to the account holder.
When money is deposited into a RESP savings account, it can be invested in various investment instruments like mutual funds, ETFs, bonds, or savings accounts. The interest earned on the investment made in a RESP savings account is tax-deferred, meaning that no tax is levied on the interest earned until it is withdrawn.
The other major benefit of having a RESP is that it allows individuals to benefit from government grants. The most popular of these is called the Canada Education Savings Grant (CESG). The CESG allows individuals to receive a match of 20 percent of every $2,500 that is contributed annually, up to $500 annually per beneficiary.
However, the CESG can accumulate to a maximum of $7,200 over the life of the child. This increases the value of the education savings account.
In addition to the CESG, there are various programs that support saving for education, particularly for low-income families. One such program is the Canada Learning Bond (CLB).
Due to these incentives, the RESPs form a vital component of the long-term education financial planning for Canadian households.
RESP Contribution Limits And Key Rules
While RESPs offer many advantages, they also come with rules and limits that families must understand.
One of the most important considerations is the RESP contribution limits. According to CRA guidelines:
- The lifetime contribution limit per beneficiary is $50,000.
- There is no annual contribution limit, but government grants are calculated annually.
- Contributions beyond the $50,000 limit trigger a 1% monthly penalty tax on excess contributions.
Families can plan their contributions in such a way that they can receive the maximum grants from the government while staying within these limits.
For instance, by contributing 2,500 dollars per annum, families can receive the maximum CESG grant of 500 dollars per annum. Such contributions and grants can add up over many years in terms of returns from investments.
These regulations are important in helping families make the most out of their RESP accounts while avoiding unnecessary tax issues.
RESP For Low Income Families Canada
Canadians believe that only those who are wealthy can benefit from an RESP. In fact, there are many programs that are designed to assist RESPs for low-income families in Canada.
The most important program is the Canada Learning Bond (CLB). The Canada Learning Bond is a program that offers government contributions to an RESP for a child from a lower-income family.
Under the CLB for free RESP contributions rules, families may receive:
- An initial $500 deposit when the RESP is opened
- Additional $100 annual deposits, up to a lifetime maximum of $2,000
One of the most significant features of the CLB is that the parents do not have to contribute any of their money to qualify for these benefits. All they have to do is open an RESP for the child.
The combination of the CLB and CESG is a powerful tool for saving for education that can benefit all Canadian families.
According to Employment and Social Development Canada, millions of Canadian kids qualify for the Canada Learning Bond. However, the reality is that many Canadian families still have not claimed the Canada Learning Bond.
What Can RESP Be Used For
Parents may initially think that the funds can be used to pay for the tuition fees. However, the RESP funds can be utilized for a variety of expenses.
According to the Canada Revenue Agency, the RESP funds can be utilized for the following expenses:
- Tuition fees
- Mandatory student fees
- Books
- Academic supplies
- Equipment or tools required for a particular program
- Transportation expenses for attending school
- Cost of housing
- Cost of food
These expenses are important because education is not just about the tuition fees.
When a student is attending college or a university, he or she will incur expenses such as rent, transportation expenses, utility bills, and groceries. The RESP funds can be utilized for these expenses when the student is attending a school.
Can RESP Be Used For Rent
The question that is most commonly asked by parents is whether the RESP savings can be used for rent or not.
The answer is that it can be used for rent if the student is registered in a post-secondary program that is qualified.
This is particularly important if the student has to move away from home in order to go into a post-secondary program. One of the biggest expenses that a student will have is for their housing.
RESP withdrawals can help cover:
- Monthly rent payments
- Student residence housing fees
- Utility bills, such as electricity or internet
- Groceries and daily living costs
Because living expenses are considered part of the cost of education, RESP funds can legally be used for these purposes once the student meets the program eligibility requirements.
Understanding RESP Withdrawal Types
RESP withdrawals are divided into two primary categories.
Post-Secondary Education Withdrawals (PSE)
The withdrawals are from the original contributions that were made to the RESP.
The withdrawals from a PSE do not require taxes since the contributions were from after-tax dollars.
The withdrawals can be made from the RESP as soon as the student is enrolled in a qualified program.
Educational Assistance Payments (EAP)
Educational Assistance Payments consist of:
- Government grants such as CESG and CLB
- Investment earnings generated within the RESP
These funds are taxable in the hands of the student, not the subscriber.
Because students typically have low income while studying, the tax burden on EAP withdrawals is usually minimal.
RESP Withdrawal Limits During Early Enrollment
Although RESP accounts are not restricted, there are restrictions on Educational Assistance Payments when a student first starts their education.
The Government of Canada states that when you have an RESP account, you are allowed to withdraw up to:
- Full-time students: $8,000 of EAPs within the first 13 consecutive weeks of being a full-time student.
- Part-time students: $4,000 of EAPs within the first 13 consecutive weeks of being a part-time student.
After these initial 13 weeks, these restrictions are removed, allowing you to withdraw larger amounts if needed.
Using RESP Funds For Housing Costs
One of the biggest costs for a student’s education, in case he/she does not live at home, is housing costs.
The average cost for renting a place for a student in the major cities in Canada ranges from $900 to $1,500 per month, as per the survey conducted in 2024 on Canadian Student Housing.
RESP funds can help offset these costs by covering:
- Monthly rent payments
- Security deposits
- Residence fees for on-campus housing
- Shared accommodation expenses
Because housing is considered a necessary living expense during education, RESP withdrawals can legally be used for these costs.
Families often plan RESP withdrawals carefully to ensure funds last throughout the student’s entire academic program.
Strategic RESP Withdrawal Planning
Effective management of RESP withdrawal can help a family maximize the savings they have set aside for their children’s education.
Many financial planners suggest withdrawing the Educational Assistance Payments first since they contain the grants provided by the government and the investment income, which will all be used to fund the child’s education someday.
The original contributions can be withdrawn later if the money is needed, since they are not subject to taxation.
This approach can help a family maximize the benefits provided by the government while minimizing the tax liabilities.
Can I Use My RESP To Buy A House
Another question that sometimes comes up is: Can I use my RESP to buy a house?
The RESP is intended for education costs, not for other uses such as buying a house.
If you are not planning on using your RESP for post-secondary education, then…
In such cases:
- Original contributions can be withdrawn tax-free by the subscriber.
- Government grants must be returned to the government.
- Investment earnings may be taxed unless transferred to another registered account, such as an RRSP (if eligible).
Because of these restrictions, it is important to plan RESP withdrawals carefully and ensure funds are used for legitimate education-related purposes.
Choosing The Right RESP Plan
When a family decides to open an RESP plan, they can compare different providers to choose a plan that suits their needs best.
RESP plans can be found in many financial institutions, such as banks, credit unions, and financial advisors.
Comparing options and reviewing RESP quote information can help families understand:
- Available investment choices
- Management fees and administrative costs
- Flexibility of contribution schedules
- Withdrawal processes
Selecting the right RESP provider can have a long-term impact on the growth and flexibility of education savings.
Final Thoughts
It is important to note that the cost of a post-secondary education in Canada is not just the fees incurred, as the cost of housing, transportation, etc., may be a significant factor in the overall cost incurred by the student.
Fortunately, the Registered Education Savings Plan offers a flexible solution to meet the expenses incurred by the student.
In this regard, a number of educational needs like tuition fees, books, housing, and living expenses may be financed by the RESP account, especially with the added strength provided by incentives like the Canada Education Savings Grant and Canada Learning Bond.
Thus, a full-fledged educational savings plan may be designed for a student by clearly understanding RESP contributions, withdrawals, and expenses.